Focused Funds: A Right Portfolio to Choose
Amid this critical situation of COVID-19 pandemic, it might be quite confusing for financial investors to pick a right portfolio from a blend of equity and debt available which are available as of now. But a mutual fund advisers can easily guide.
Focused funds invest funds in limited securities in specific areas rather than a diversified portfolio of equity. The fund managers can choose up to 30 stocks in this type of schemes instead of holding between 50 and 60 or more stocks at the same time. As per the market regulator’s norms, these schemes should mention where it plans to invest, for example, multi cap stocks and large cap stocks etc.
Over the past few years, focused funds have received attention. Mr. Gurmeet Chadha, Chief Executive Officer and Co-founder at Complete Circle Consultants Private, has said that the rise in the benchmark index is dominated by several heavyweights (before the Covid-19 pandemic) and these stocks are more exposed and high. The consultant Pvt. has diversified its investment in more than 30 stocks, and the non-systemic risk of investment has not decreased significantly.
In the past five years, focused stock funds have outperformed large cap stocks. According to data from Morningstar India, the average rate of return of focused fund categories is 6.2 per cent, while that of large cap stocks is 5.5 per cent.
Mr. Amit Bivalkar, executive at Insightful Riches Guides and Specialists Pvt., has said while concentrated portfolios (top 10 stocks usually account for 60-70 per cent of the portfolio) increase the odds of having a positive impact on the fund, the lack of diversified investment increases loss-making investments and higher volatility . “For individuals who comprehend fixation dangers, I figure you ought to go for centered assets,” he further added.
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