Best 10 Focused Funds

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What are focused funds?

Focused funds are those equity mutual funds that follow a concentrated investment strategy focusing on a limited number of stocks. According to SEBI guidelines, focused funds can invest in up to 30 stocks with at least 65% of their fund portfolio invested in equities and equity-related instruments. SEBI guidelines also require these funds to mention their intended market capitalization exposure viz multi-cap, large-cap, small-cap or midcap. 

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Why invest in focused funds

• Aims to identify and invest in high conviction stocks
• Higher allocation to high conviction stocks usually delivers over the long term
• The concentrated approach reduces the opportunity cost of under-allocating to winning investment ideas
• Concentrated portfolios reduce the risk of over-diversification
• Higher allocation to winning stocks significantly changes the performance of the overall fund portfolio performance
• Select companies in a growing economy often exhibit higher earnings and growth irrespective of the business cycle

Also Read:- How to Balance your Risk v/s Return in Mutual Fund Investments

Table of Best 10 Focused Funds

(Data as on August 20, 2021: Source: Value Research)

Investment Strategies of Focused Funds

1. IIFL Focused Equity Fund

• Follows a bottom-up sector-agnostic strategy for stock selection
• Uses a multi-cap strategy with a large-cap bias
• Follows an SCDV (Secular, Cyclical, Defensives and Value Trap) investment framework to generate superior risk-adjusted returns
• Prefers companies with strong earnings growth, high ROCE (Return on Capital Employed), ROE (Return on Equity), cash-generating capital-light business model and attractive valuations

Also Read: Best Large Cap Funds

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2. IDFC Focused Equity Fund

• Retains the flexibility to invest across market cap and sectors
• Fund portfolio reflects the fund manager’s conviction rather than hugging the benchmark
• Fund portfolio consists of a mix of core and tactical ideas
• Core portfolio of the fund consists of growth-oriented and high-quality businesses
• Growth-oriented companies refer to scalable businesses participating in a large opportunity size with visibility of growth is equally
• High-quality companies refer to those generating superior Return on Capital Employed (ROCE), having low capital intensity and generating healthy operating cash flows
• Tactical portfolio of the fund consists of turnaround companies
• Prefers companies with quality management following strong corporate governance, implementing efficient capital allocation and focusing on value creation for shareholders

Also Read:-Which is the Right Time to Invest in Mutual Funds?

3. Mirae Asset Focused Fund

• Follows a multi-cap strategy focusing on just high-quality stocks
• Stock selection aimed at building a portfolio of strong growth companies reflecting the fund house’s most attractive investment ideas
• Avoids concentration risk and liquidity risk during the stock selection
• Uses Quantitative Screening to evaluate companies based on management quality, earnings growth, return on investment, size, liquidity and benchmark
• Uses extensive ‘primary research’ through management meetings, detailed financial models and market intelligence with the help of dealer checks, industry experts, plant visits and broker support
• Portfolio selection is centred on buying quality businesses for up to a reasonable price and holding the same over an extended period

Also Read: Top 10 Performing Mid Cap Mutual Funds

4. L&T Focused Equity Fund

• Follows a sector-agnostic and market-cap agnostic approach for stock selection
• Aims at delivering higher alpha albeit with the higher volatility
• Invests in companies having good business with quality management at reasonable valuation
• Uses bottom-up stock selection using the fund house’s proprietary G.E.M (Generation of Ideas, Evaluation of companies and Manufacturing and Monitoring of portfolios) investment approach
• The stock-selection process is backed by strong investment process and risk management team

5. Principal Focused Multicap Fund

• Maintains a large-cap bias despite its multi-cap approach
• Large-cap bias allows it to be more synchronized with economic growth
• Maintains a well-diversified portfolio with exposure to 16-17 industries
• Actively manages a portfolio with low index hugging
• Invest in high-quality companies with a proven track record and economic moat
• Portfolio selection backed by detailed research
• Follows GARP (Growth At Reasonable Price) investment policy to select companies showing consistent earnings growth and available at reasonable valuations

Also Read: Invest in Top Multicap Mutual Funds in India

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6. ICICI Prudential Focused Equity Fund

• Invests across market capitalization and sectors
• Follows a bottom-up approach for stock selection
• Prefers companies with robust financials, sustained competitive advantages and above-average profitability
• Portfolio allocation is based on a tactical basis rather than any predetermined ratio
• Maintains overweight stance on select high conviction sectors and themes expected to outperform in the current economic cycle

7. Motilal Oswal Focused 25 Fund

• Invests in up to 25 companies with long term growth potential and sustainable competitive advantages
• Invests in high conviction stocks with improved risk-adjusted return characteristics
• Aims at optimal diversification while investing at least 65% of the fund portfolio in large-cap stocks
• Has capped the exposure of a single stock at 10% of NAV in a single stock

Also Read: Best 10 Small Cap Mutual Funds to Invest in 2021

8. Axis Focused 25 Fund

• Invests in up to 25 best high conviction ideas while remaining diversified
• Follows pure bottom-up approach
• Remains invested in companies throughout their business cycles without getting affected by short term market volatility
• Prefers lower beta and standard deviation with tight tracking error as compared to the benchmark
• Follows concentrated focus on companies delivering ROCE/ROE over the medium to long term on a sustained basis
• Typically avoids PSUs
• Core portfolio consists of 50-60% of the fund portfolio with an investment horizon of 3-5 years
• Core portfolio consists of companies generating reasonable returns with low volatility
• The alpha portfolio consists of 20-25% of the fund portfolio with an investment horizon of 18-24 months
• The alpha portfolio consists of companies having cyclical tailwinds
• Allocation for emerging themes in the fund portfolio ranges 20-25% of the fund portfolio with an investment horizon of more than 5 years
• Emerging themes consists of companies having the ability to generate break-out growth in the future

Also Read: 10 Best Large & Mid Cap Mutual Funds to Invest in 2021

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9. SBI Focused Equity Fund

• Invests at least 65% of the fund portfolio in equity and equity-related instruments across market capitalization and sectors
• Retains the flexibility to invest up to 35% of the fund in debt and/or money market instruments
• Aims to generate long-term capital appreciation by investing in a concentrated equity portfolio
• Follows a bottom-up approach for stock-picking

10. Sundaram Select Focus Fund

• Maintains a large-cap concentrated fund portfolio with exposure to no more than 30 companies across sectors
• Aims to outperform diversified large-cap funds through concentrated high conviction and high allocation strategy
• Aims to deliver steady and consistent returns over time with limited volatility and GARP (Growth at Reasonable Price) bias
• Follows a bottom-up stock selection approach based on in-house research and fund managers’ conviction
• Usually focuses on around 3-4 investment themes

Also Check:-SEBI Rules on Exit Load for Liquid Funds

Who should invest in Focused Funds?

• Those aiming for wealth creation with investment horizons of at least 3-5 years
• Staying invested in the long term to increase the possibility of generating positive returns
• Those with aggressive risk profile wishing to benefit from equity investing through a focused portfolio consisting of high conviction bets