If you want mutual funds to invest in selected companies, invest in focused equity funds. Focused equity funds invest in 20 to 30 stocks. This type of investment is good for investors who want to invest in a few selected stocks.
What is a Focused Mutual Fund?
According to SEBI, any focused fund can invest in up to 30 stocks of various market caps. However, mutual funds have the freedom to focus on a particular market cap segment. Largecap funds, on the other hand, invest at least 80% of their assets in large-cap company equity or equity-based instruments.They are free to buy as many shares as they want without any restrictions. Most equity mutual funds invest in 100 or more stocks.
Now let’s turn to focused funds once again.
The number of shares in this fund is limited. So fund managers invest in stocks that can perform well. Focused funds can also be invested in large caps. Therefore, investors should look at the investment method of the fund as well as at which stocks are in the fund’s portfolio. This gives information about the market cap companies the fund is investing in as well as the investment strategy. Aggressive investors who take more risk invest in focused funds, said Srinivas Rao Ravuri, CIO of PGIM India Mutual Fund.
Now let’s see how focused funds have given returns. Over the last three to five years, Focused Mutual Funds have generally returned between 20 percent and 11 percent. Should you invest in Focused Mutual Fund now or not? You must have asked this question. Before investing in a focused mutual fund, it is necessary to pay attention to many factors.
Focused mutual funds are likely to give good returns by investing in certain good stocks. However, do good research before investing. There are many risks involved in investing in such funds. So consider the strengths and weaknesses before making a final decision.
Focused mutual funds are suitable for experienced investors. New investors should stay away from this. Experienced investors are willing to take higher risks to earn higher returns. Also, after investing in an instrument like a focused mutual fund, good returns can be obtained only after five to seven years.
Focused equity mutual funds generally have a lot of ups and downs. So, for safe investment, it is better to opt for other mutual funds instead of focused mutual funds.