Focused mutual funds, in the equity markets, are considered as the 'best idea funds'.
What is a Focused Mutual Fund?
The Focused Mutual Funds invest in particular 20-30 company stocks in some of the selected sectors. Mutual funds are commonly known as funds that will invest in multiple company stocks and will diversify the investors' money in different sectors.
Generally, other mutual funds hold their positions in more than 100 company stocks. The focused mutual funds, on the other hand, are limited to only a few sectors. These fund managers will choose the best performing sectors with high-performing companies and will invest in them. Hence, the focused equity funds are also known as 'concentrated funds' or 'under-diversified funds'.
Risk factors of the focused mutual funds are higher than the other mutual funds because they have more scopes to diversify their investments. If a particular sector, or even if a high-performing asset does not perform well at some point in time, the other stocks can back the fund. However, in the case of focused funds, the assets are selected after thorough research and estimations, but sometimes the equity market can downturn for them. At that time, the focused funds will be riskier than the other mutual funds.
There are multiple advantages of focused equity funds. An experienced investor, who is knowledgeable about the equity markets, companies and their performances, sector-wise portfolios, etc. is more comfortable with the focused funds. If an investor has a clear idea about the best performing sector, he or she can choose the focused mutual funds those hold positions in that sector. It will be beneficial for the investor because rather than investing in selected stocks, he/she can invest in a single mutual fund, which will invest in multiple company stocks operating in that sector.
Top-rated focused mutual funds
IIFL Focused Equity Fund, SBI Focused Equity Fund, Quant Focused Fund, Principal Focused Multicap Fund, and Axis Focused 25 Fund are some of the most popular focused equity funds. IIFL Focused Equity Fund (NAV Rs. 33.09, AUM Rs. 2468.94 Crore), and Quant Focused Fund (NAV Rs. 55.11, AUM Rs. 53.45 Crore) are two 5 star rated focused mutual fund by research firm Crisil. The SBI Focused Equity Fund (NAV Rs. 249.67, AUM Rs. 23092.87 Crore) is a 4 star rated focused mutual fund by Crisil. The Asset Under Management or fund size is comparatively lower in the Quant Focused Fund. Significantly, AUM and Expense Ratio are two important factors that should be considered for a mutual-fund investment.