What is a Focused Equity Fund?

Focused equity funds are investment vehicles that invest in a concentrated portfolio of stocks. These funds hold a smaller number of stocks ranging from 20 to 30. The fund manager will select securities based on their research and analysis of the sector’s performance and prospects for future growth. 

A focused equity fund aims to generate higher returns than the benchmark index by investing in a limited number of high-quality stocks that are expected to perform well. This type of fund is suitable for those looking to diversify their portfolio while taking advantage of more focused investments with higher potential returns than other types of mutual funds.

This article covers: 

• Advantages of Focused Funds
• Taxation of Focused Funds
• Flexi cap vs Focused equity fund
• Best focused equity fund
• What is a Focused Equity Fund- Quick Summary
• What is a Focused Equity Fund- Frequently Asked Questions

Advantages of Focused Funds

The primary advantage of investing in focused funds is that it is handled by fund managers solely focused on selective industry stocks and shares. They conduct a detailed financial analysis of these stocks and invest in their equities to gain the highest returns. 

Diversification

Investing in focused funds allows you to spread your investments across multiple sectors or industries without purchasing individual stocks for each one. This helps reduce risk by ensuring that if one sector performs poorly, it won’t impact your overall portfolio performance as much.

Expertise

Focused funds are managed by experienced professionals specializing in different areas such as technology or healthcare. By entrusting your money with these experts, you can benefit from their knowledge and experience when making investment decisions.

Better Researched Investments

Focused fund managers have a smaller pool of stocks to choose from, which allows them to spend more time researching and analyzing each company in their portfolio. This in-depth research can help the fund manager identify high-quality companies with solid growth potential and competitive advantages. 

Higher Returns

Since focused funds invest in fewer stocks, typically around 20-30, the fund manager can focus on the best-performing stocks and make active investment decisions based on market opportunities. This approach allows the fund to generate higher returns in the medium to long term than a diversified fund that invests across different sectors and stocks. 

Also, focused funds are actively managed as the fund manager can make quick decisions to adjust the portfolio in response to market changes or news that may impact the performance of the underlying stocks. This flexibility can enable focused funds to take advantage of opportunities and potentially generate higher returns for investors.

Negates limitations of mutual funds

Focused funds may negate some of the limitations of traditional mutual funds. For example, conventional mutual funds may restrict how much they can invest in a single stock or sector, limiting their potential returns. On the other hand, Focused funds have more flexibility to invest in a smaller number of high-conviction equities, which can help generate higher returns. Also, traditional mutual funds may have higher fees and expenses due to the need for diversification across many stocks. In comparison, focused funds may have lower fees due to their smaller number of holdings.

Taxation of Focused Funds

• Tax on long-term capital gains: If a shareholder keeps mutual fund units for more than a year, the gains are regarded as long-term capital gains. For gains surpassing Rs. 1 lakh in a financial year, long-term capital gains tax is imposed at a rate of 10% for equity-oriented mutual funds, which includes focused mutual funds. There is no tax owed on gains up to Rs. 1 lakh.
• Tax on short-term capital gains: If a shareholder owns mutual fund units for less than a year, the gains are regarded as short-term capital gains and are subject to a 15% tax.

Flexi cap vs Focused equity fund

The main difference between Flexi cap funds and focused equity funds is that flexi cap funds have no limitations on the number of stocks they can invest in. On the other hand, a focused equity fund must invest within 30 stocks in its portfolio, which means the fund managers have to be selective when picking stocks. 

The difference between Flexi cap and focused equity fund is given below in the table: 

Best Focused Equity Funds

Do you want to expand your knowledge about mutual funds? We’ve got a list of must-read blogs that will help you do just that. Just click on the articles to find out more.

What is a Focused Equity Fund- Quick Summary

• Focused equity funds invest in a smaller number of high-quality stocks that are expected to perform well.
• The concentrated portfolio of focused funds allows for more in-depth research and analysis of each stock.
• Focused funds have the potential to generate higher returns than diversified funds due to their focused investment approach and active management.
• Focused funds can offer better diversification across sectors than individual stock investments.
• Taxation on focused funds varies based on the duration of investment and the number of gains.
• The difference between Flexi cap and focused equity funds is that flexi cap funds offer more diversification across market capitalizations and sectors. In contrast, focused equity funds have a more concentrated portfolio.
• The best focused equity fund may vary depending on an investor’s goals and risk tolerance. Still, some top performers include HDFC Focused 30 Fund, ICICI Prudential Focused Equity Fund, and Franklin India Focused Equity Fund.

What is a Focused Equity Fund- Frequently Asked Questions

Take your understanding of mutual funds to the next level! Explore our curated collection of engaging blogs that empower your investment decisions. Click now to embark on this enriching journey!

Click the link to access the web story now :What is a Focused Equity Fund?