5Y CAGR returns of NIFTY 50 are around 13.54%, but 16 out of 20 Focused mutual funds performed more than 15% 5Y CAGR, with the top 4 funds performing more than 20% 5Y CAGR leading with ICICI Prudential Focused fund with 23.5% 5Y CAGR as on date.
In this blog, we will discuss the mutual fund category called Focused Funds: are they worth investing in and what are their advantages and disadvantages?
What Are Focused Mutual Funds?
Focused mutual funds are concentrated mutual funds and must invest in a maximum of 30 stocks, with a minimum of 65% invested in equity or equity-related instruments. At any given point in time, these funds should not invest in more than 30 stocks.
The fund manager in these focused mutual funds can invest across market caps (large caps, mid-caps, and small caps) as per their conviction.
Key characteristics are:
- Concentrated portfolio with a minimum of 65% in equity or equity-related instruments.
- High-conviction investment approach across market caps
- Typically, fewer than 30 holdings.
Should I Invest in Focused Mutual Funds?
No, personally I don’t invest in Focused Mutual Funds.
A concentrated portfolio has very high return possibilities. One famous investor, Philip Fisher, had a portfolio size of only 10 stocks, with 75% of his entire portfolio invested in just the top 4 stocks.
Past 5Y CAGR growth shows most of the Focused Mutual Funds outperformed NIFTY 50, then why not to invest in Focused Mutual Funds?
Focused mutual funds have high fund manager risk, and for me, this is the biggest risk when investing in focused mutual funds. Focused mutual funds are highly concentrated in 1 or 2 sectors, and if the fund manager’s conviction is wrong or there is underperformance in any of the sectors, it will cause underperformance in the overall fund performance.
Who Should Invest in Focused Mutual Funds?
Investors should verify the Fund Manager’s track record of consistent performance over the long term across different market cycles. Investors who really understand the fund manager’s vision, and who believe in it can invest in Focused Mutual Funds.
An investor should Ideally go through the portfolio of the Focused Fund from the Scheme document and can analyse whether he believes in the future growth of the portfolio and can truly believe in the Fund Manager’s Vision.
How to Choose a Focused Mutual Fund?
For Example, Top 4 Focused Mutual Funds based on 5Y CAGR are:
- ICICI Prudential Focused Fund
- HDFC Focused 30 Fund
- Quant Focused Fund
- 360 ONE Focused Fund
The Quant Focused Fund allocates around 18.64% to consumer staples, but none of the other focused funds allocated consumer staples in their top 3 sector holdings.
Similarly, ICICI Focused Fund allocated 12.67% to Pharma/Healthcare, and HDFC Focused Fund allocated around 11.92% to Pharma/Healthcare, whereas others did not.
So, based on the sector allocation and whether you believe in the fund manager’s conviction, you can choose your focused mutual fund for investment.
Advantages of Investing in Focused Mutual Funds
- High return potential when the fund manager’s conviction played well
- Active investment style
Risks of Investing Focused Mutual Funds
- Concentration Risk
- Volatility
- High Fund Manager Risk
Top Focused Mutual Funds in the Market
| Scheme Name | AUM (₹ Crore) | Rating as per MoneyControl as on 16th Jan 2025 | 5Y CAGR |
|---|---|---|---|
| ICICI Prudential Focused Equity Fund - Direct Plan - Growth | 9,984.07 | 5 | 23.52% |
| HDFC Focused 30 Fund - Direct Plan - Growth | 15,641.91 | 5 | 22.80% |
| Quant Focused Fund - Direct Plan - Growth | 1,075.42 | 3 | 22.22% |
| 360 ONE Focused Equity Fund - Direct Plan - Growth | 7,111.76 | 3 | 20.09% |
| Franklin India Focused Equity Fund - Direct - Growth | 12,044.23 | 4 | 19.35% |
| Tata Focused Equity Fund - Direct Plan - Growth | 1,867.56 | 3 | 19.13% |
| Nippon India Focused Equity Fund - Direct Plan - Growth | 8,194.26 | 2 | 18.68% |
| Sundaram Focused Fund - Direct Plan - Growth | 1,103.59 | 2 | 18.37% |
| Bandhan Focused Equity Fund - Direct Plan - Growth | 1,836.94 | 3 | 18.23% |
| Kotak Focused Equity Fund - Direct Plan - Growth | 3,466.92 | 3 | 17.42% |
| Union Focused Fund - Direct Plan - Growth | 428.28 | 2 | 17.34% |
| SBI Focused Equity Fund - Direct Plan - Growth | 34,679.54 | 2 | 16.71% |
| Mirae Asset Focused Fund - Direct Plan - Growth | 8,191.70 | 1 | 16.64% |
| Aditya Birla Sun Life Focused Fund - Direct Plan - Growth | 7,580.92 | 3 | 16.50% |
| Baroda BNP Paribas Focused Fund - Direct Plan - Growth | 684.32 | 3 | 16.30% |
| JM Focused Fund - (Direct) - Growth | 226.47 | 4 | 16.16% |
| LIC MF Focused Fund - Direct Plan - Growth | 137.42 | 2 | 15.31% |
| DSP Focus Fund - Direct Plan - Growth | 2,482.07 | 3 | 15.23% |
| Motilal Oswal Focused Fund - Direct Plan - Growth | 1,750.41 | 1 | 12.84% |
| Axis Focused Fund - Direct Plan - Growth | 13,068.33 | 1 | 11.28% |
Alternatives to Focused Mutual Funds
Focused mutual funds come with high sector concentration risk and fund manager risk; to deal with these risks Index Fund provides better diversification, eliminating concentration risk. Since index funds are passive, they also eliminate active fund manager risk.
Conclusion
The focused mutual fund category consists of mutual funds with concentrated portfolios, with a maximum of 30 stocks and at least 65% invested in equity or equity-related instruments.
Focused mutual funds have a high risk from the fund manager, so you are essentially choosing the fund manager, not the mutual fund itself.
There are many mutual fund schemes to invest in, but not all of them are worth our time and money. I believe we can avoid focused funds in our mutual fund investments.
Share your opinion in the comment box will you invest in Focused Mutual Funds?
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