What is a Focused Mutual Fund?
Specifically, targeted mutual funds invest 20 to 30 stocks of companies in some of the selected sectors. Mutual funds are commonly referred to as funds that will invest in multiple stocks of companies and diversify investor money across different industries.
Typically, other mutual funds hold their positions in more than 100 stocks of companies. Focused mutual funds, on the other hand, are limited to only a few industries. These managers will choose the best performing sectors with performing companies and invest in them. Therefore, focused equity funds are also referred to as “concentrated funds” or “under-diversified funds”.
The risk factors of targeted mutual funds are higher than other mutual funds because they have more possibilities to diversify their investments. If a particular sector, or even if a high performing asset is not performing well at any given time, other stocks can support the fund. However, in the case of targeted funds, assets are selected after extensive research and valuation, but sometimes the stock market may pull back for them. At that point, the targeted funds will be riskier than other mutual funds.
Targeted equity funds have many advantages. An experienced investor who is familiar with equity markets, companies and their performance, sector portfolios, etc. is more comfortable with targeted funds. If an investor has a clear idea of which sector is performing better, he or she can choose the targeted mutual funds that hold positions in that sector. This will be beneficial for the investor because rather than investing in selected stocks, he can invest in a single mutual fund, which will invest in multiple stocks of companies operating in this industry.
Top Rated Focused Mutual Funds
Among the most popular targeted equity funds are the IIFL Focused Equity Fund, SBI Focused Equity Fund, Quantitative Focused Fund, Core Focused MultiCap Fund, and Axis 25 Focus Fund. 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 focused mutual funds rated 5 stars by research firm Crisil. The SBI Focused Equity Fund (NAV Rs. 249.67, AUM Rs. 23,092.87 Crore) is a focused mutual fund rated 4 stars by Crisil. The assets under management or fund size is comparatively smaller in the Quant Focused Fund. Significantly, the assets under management and the expense ratio are two important factors that must be taken into account when investing in a mutual fund.