5 Benefits of Having Focused Funds in Your MF Portfolio

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New Delhi (India), May 22: Focused funds have a unique set of advantages to offer for those who are looking for targeted exposure in their mutual fund portfolios. By adopting a myopic approach, these funds prioritize certain sectors.

Focused funds can be beneficial for investors depending on their risk-taking ability, investment objectives and time horizon. If the underlying stocks perform well, these funds can give a higher return and be a rewarding experience. Read on to learn more about including focused funds in your portfolio.

What are Focused Mutual Funds? A focused mutual fund is a specialized mutual fund that concentrates on a limited number of stocks with shared characteristics. By having a focused fund, investors can typically invest in 20-30 companies that belong to the same sector.

Although this investment option entails limited diversification of the portfolio, the approach is more targeted.

Owing to their filtered approach, these funds are also termed “concentrated funds” or “under-diversified funds”. Since focused funds are equity-oriented, they are ideal for achieving long-term financial goals like saving for children’s education, investing in a house or using it as a savings scheme for retirement.

5 Benefits of Having Focused Funds If you are considering investing in focused funds to enhance your mutual funds’ portfolio, here are 5 main benefits for you.

Long-term Investment These funds are better for investors with a longer timeframe such as 5-7 years for returns to maximize. Therefore, it is the best option for those who want to park their funds safely and achieve long-term goals.

Stringent Screening by the Fund Manager A skilled fund manager carefully evaluates various stocks as they have complete knowledge of the market. This makes it easier to potentially capitalize on lucrative deals. The aim is to look for those stocks that have a high growth potential and fundamentals. This way, the portfolio is strong as it comprises the best-positioned companies.

Enhanced Exposure to Handpicked Stocks Since these funds are selectively handpicked by fund managers, the chances of earning higher returns are possible than diversified mutual funds. The main aim of investing in these stocks is to deliver maximum returns by investing in high-performing assets.

Flexible Stock Selection An investor can use focused funds to invest in companies or industries of any market capitalisation. Therefore, focused equity funds can invest in small, large or medium-cap enterprises. This makes these funds similar to multi-cap mutual funds but with a lesser number of stocks.

Higher Returns Focused funds have a concentrated portfolio of selected stocks which are carefully selected. They contain high risk but as a result, they also offer investors higher returns. However, investors need to understand their risk appetite before making such investments.

The Bottom Line The inclusion of focused funds, one of the best equity mutual funds, in your mutual fund’s portfolio may not drive up the diversification quotient, but when handled carefully can lead to better returns. These funds offer exposure to investors in certain sectors. By selecting a cautious approach, focused funds can serve as valuable tools to achieve financial goals. To invest in focused Funds, open an account with Dhan.