What is a Focused Equity Fund?

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

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: 

Flexi Cap FundsFocused Equity Funds
Flexi Cap Funds invest across market capitalizations and sectors and can shift between large-cap, mid-cap, and small-cap stocks based on market conditions.Focused Equity Funds invest in a concentrated portfolio of 20 to 30 stocks with a more focused investment approach.
Flexi Cap Funds may offer more diversification across market capitalizations and sectors.Focused Equity Funds may have a higher risk profile due to their concentrated portfolio.
Flexi Cap Funds can potentially deliver higher returns in the long run. Focused Equity Funds may have a higher potential for outperformance if the fund manager picks the right stocks.
The main advantage of flexi cap funds is their ability to adapt quickly to changing market conditions due to their lack of specialization in any specific sector or industry.The main advantage of focused funds is that they have a specific investment objective, such as sector-focused or theme-focused, which can help to better align the fund’s investment strategy with the investor’s goals.

Best Focused Equity Funds

Focused equity fund NAV as of Mar 24, 2023Expense ratioAUM (Fund Size)Min. Investment
HDFC Focused 30 Fund Direct Plan-Growth₹ 142.220.54% ₹ 3,610 CrsSIP ₹100 &Lump Sum ₹1000
Quant Focused Fund Direct-Growth₹ 56.860.57%₹ 220 CrsSIP ₹1000 &Lump Sum ₹5000
ICICI Prudential Focused Equity Fund Direct-Growth₹ 55.370.59%₹ 3,921 CrsSIP ₹100 &Lump Sum ₹5000
Franklin India Focused Equity Fund Direct-Growth₹ 73.031.0%₹ 8,023 CrsSIP ₹500 &Lump Sum ₹5000
Nippon India Focused Equity Fund Direct-Growth₹ 82.121.21%₹ 5,930 CrsSIP ₹500 &Lump Sum ₹5000
Sundaram Focused Fund Direct-Growth₹ 111.121.21%₹ 771 CrsSIP ₹100 &Lump Sum ₹300
SBI Focused Equity Fund Direct Plan-Growth₹ 238.890.69%₹ 26,561 CrsSIP ₹500 &Lump Sum ₹5000
Baroda BNP Paribas Focused Fund Direct – Growth₹ 15.150.67%₹ 300 CrsSIP ₹500 &Lump Sum ₹5000
Aditya Birla Sun Life Focused Equity Fund Direct-Growth₹ 95.461.06%₹ 5,634 CrsSIP ₹1000 &Lump Sum ₹1000
Motilal Oswal Focused Fund Direct-Growth₹ 35.080.99%₹ 1,644 CrsSIP ₹500 &Lump Sum ₹500
Bandhan Focused Equity Fund Direct-Growth₹ 56.560.93%₹ 1,195 CrsSIP ₹100 &Lump Sum ₹5000
DSP Focus Direct Plan-Growth₹ 33.821.08%₹ 1,785 CrsSIP ₹500 &Lump Sum ₹1000
Edelweiss Focused Equity Fund Direct-Growth₹ 10.06NA₹ 478 CrsSIP ₹500 &Lump Sum ₹5000
Axis Focused 25 Direct Plan-Growth₹ 40.420.74%₹ 15,140 CrsSIP ₹100 &Lump Sum ₹500
Canara Robeco Focused Equity Fund Direct-Growth₹ 12.280.43%₹ 1,679 CrsSIP ₹1000 &Lump Sum ₹5000

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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

1. What are focused equity funds?

Focused equity funds are mutual funds that invest in a small number of stocks, usually between 20 to 30. These funds allow investors to focus on high-quality stocks while diversifying their investments across different companies.

2. Is Focused equity fund good?

A focused equity fund can be a good investment option for investors willing to take on higher risks and earn higher returns. However, it is essential to carefully evaluate the fund’s investment strategy, performance history, fees, and management team. 

3. Which focussed fund is best?

  1. HDFC Focused 30 Fund
  2. Quant Focused Fund
  3. ICICI Prudential Focused Equity Fund Direct-Growth

4. When should I invest in focused funds?

When you clearly understand your financial goals and objectives, you should consider investing in focused funds. Make sure to research different types of investments available so you can make an informed decision.

5. How many stocks are in a focused fund?

A focused fund typically contains a smaller number of stocks than other funds. Generally, these funds will have between 20 to 30 stocks in the portfolio. The goal is to focus on strong fundamental companies expected to outperform the market over time.

6. What is the return of a focused equity fund?

Focused equity funds tend to have higher returns due to their concentrated portfolio, which allows for more aggressive investment strategies. However, this also means an increased risk is associated with these funds.

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