courtesy: business standard
Equity funds that follow a strategy of having a concentrated portfolios are known as focused mutual funds. As per the regulation, these funds cannot have more than 30 stocks in their portfolio. However, there is not limit over the market cap or sectors it can invest in.
How do Mutual Funds work?
Funds invested in limited number of stocks
Typically, mutual funds have an option of deciding on their own number of stocks they want to hold. And normally, equity mutual funds hold somewhere between fifty and one hundred equities. However, this number is determined by the investment objectives of the fund. On the other hand, a focused mutual fund can only be composed of 30 stocks at most. This means that technically it is all about running a concentrated portfolio, meaning putting money in a few selected stocks.
There are no restrictions on where they invest:
Focused funds have no limitations as to which company they can invest in. They may hold securities from different industries and capitalizations. It means such a focused fund can invest without constraints in large caps, medium caps and small caps too. These types of funds are similar to Flexi-cap mutual funds but with fewer stocks. Fund managers have discretion over how much of the money will be allocated to big companies or small or medium size firms.
Who should invest in Mutual Funds?
Investors who have an appetite for risk:
Focus funds pose higher risk due to limited number of shares contained within their portfolio. The manager makes bets on certain shares that he/she believes will turn into profitable investments for his/her clients. Nevertheless, in case these lotto style bets go wrong there are considerable losses experienced because such concentration implies that even missing one bet has high consequences to be paid for by the investor’s pocketbook directly out of her or his earnings account so obviously people who would like to take more risk than diversified mutual funds may buy them alone.
