Investments idea In India

A wise person once said, “Life is like a camera. Focus on what’s important and you will capture it perfectly.” Focused Funds have deeply imbibed this philosophy.

What are Focused Funds?

These are a type of equity mutual funds which invest in limited or certain selected kind of stocks. The core objective of these funds is to generate superior returns in the long run. Their stock selection criteria revolve around companies with high growth potential.

As per the recent re-categorization initiative of SEBI (Securities and Exchange Board of India), Focused Funds are permitted to invest in maximum 30 stocks. They need to clearly mention in the scheme objective the intended market capitalization (large, mid, multi or small cap) of stocks it wishes to invest in. The minimum equity exposure in these funds needs to be 65%.

Key features of https://www.etmoney.com/mutual-funds/equity/focused/77" target="_blank" rel="nofollow">Focused Equity Mutual Funds

Best focused mutual funds seek to offer specific market exposure to the investors rather than a broadly spread or diversified portfolio.

Portfolio Composition

Focused Funds are market-cap and sector agnostic. They are free to invest across all market capitalization segments. However, more than 10% of the portfolio is not allowed to be allocated in a single stock.

The fund manager of these funds undertake in-depth market research and allocate the corpus across a restricted number of stocks.

A diversified multi-cap fund?

Many might argue that a focused fund is similar in structure to a diversified multi-cap fund. But there is one major distinction. The portfolio of the best focused mutual fund is much more concentrated than a normal diversified equity mutual funds. So, while all focused funds can be diversified multi-cap funds, the vice versa may not hold true.

Risk

“Beta”, in mutual fund parlance, measures the associated risk of a scheme in comparison to the overall market risk. A value greater than one indicates that the scheme is more prone to volatility than the market. Best focused mutual funds tend to have a beta value higher than one. Also, their “variance” value or measure of volatility is on the higher side. Due to their highly concentrated investment they are considered a high risk instrument.

Return

High risk potentially translates into high returns. If the fund manager’s investment bets turn out good, then the best focused mutual funds can generate superior returns for the investors.

Should you invest in Focused Funds?

Three funds from this category have found themselves in the top five multi cap funds in the last year. So, if you are a seasoned investor with an aggressive risk appetite, you can surely consider investment in the best focused mutual funds. However, you should be okay to witness some short-term underperformance as these funds focus on steady wealth creation in the long run. Also, it is better to take a small exposure to these funds and balance the rest of the portfolio accordingly with other diversified options.

These funds may not be ideal for new investors (irrespective of their risk profile) as the frequent volatility can be quite overwhelming in the beginning. If you are on the lookout for safe or steady options to park your money, you should refrain from investment in focused funds.

Here is a list of the ten best focused mutual funds available in the Indian market.

• SBI Focused Equity Fund
• Axis Focused 25 Fund
• Motilal Oswal Focused 25 Fund
• IDFC Focused Equity Fund
• Principal Focused Multicap Fund
• Aditya Birla Sun Life Focused Equity Fund
• Franklin India Focused Equity Fund
• Nippon India Focused Equity Fund
• HDFC Focused 30 Fund
• ICICI Prudential Focused Equity Fund

Final Words

Focused Funds work on the principle that one needs to focus on the possibilities for success and not on the potential for failure. In fact, the focus is sometimes more important than intelligence. And focused equity mutual funds combine both these factors – focus on intelligent choices.

Equity Mutual Funds are a great investment vehicle for investors who are looking for solid returns in the long run. And the USP of https://www.etmoney.com/mutual-funds/equity" target="_blank" rel="nofollow">Equity Funds is that there is something for everyone- irrespective of your risk appetite, investment horizon and financial goal. These funds can be categorized basis four factors – market capitalization, diversification, themes(sectors) and solutions (ELSS). In this article, we will talk about the sub-category – market capitalization with a special focus on mid-cap funds.

Meaning of Market Capitalization

Market capitalization (or cap, as it is often referred to) is simply the market value of a company. It can be calculated by multiplying the number of outstanding shares with the current share price.

Basis the value of market capitalization, companies are further divided into three categories – Large, Mid and Small. Large-cap companies invest in the top 100 stocks and are often the market leaders or big players. The next in line are mid-cap companies. This segment consists of the next 150 stocks (i.e. stocks ranked between 101 and 250) in terms of market capitalization. Small-cap stocks invest in the 251st onwards companies.

What are Mid-Cap companies?

Companies in this category are often experienced players in an industry which is already on a solid growth path or expected to grow substantially. As per the SEBI re-categorization guidelines, mid-cap Funds need to invest a minimum 65% of their total assets in stocks (equity and related instruments) of mid-cap companies. In terms of the risk-return equation, mid-cap companies are placed in between large-cap and small-cap. Though there is no prescribed mandate on the value of market capitalization for mid-cap stocks, generally it lies between 5,000 crores to 20,000 crores.

Investors get attracted to mid-cap stocks as they have the potential for tremendous growth and may give good returns in the medium–long term period.

Key features of Mid Cap Equity Funds

• Growth Potential

Unlike large-cap stocks which are associated with stagnant or slow growth (as they are already at the top), mid-cap stocks are yet to reach their maximum potential. Hence, there is scope for fast growth and higher returns with these equity funds.

• Risk

The 2Rs (Risk and Return) go hand in hand. Mid-cap Equity Funds are riskier when compared to large-cap stocks. This is because in their attempt to grow faster and generate higher returns, they might invest in instruments with a higher risk profile.

• Moderately priced

Mid-cap stocks form the core of value investing. More often, companies with mid-cap stocks tend to be relatively undervalued. Hence, they can be a great addition to your portfolio as a means of wealth creation in the long run (when the market realizes its true worth)

Are mid-cap funds right for you?

Mid-cap funds add a dimension of diversification to the overall portfolio. They are suitable for investors with a moderate risk appetite who can commit to a medium to long-term investment horizon (i.e. 7-10 years). This is due to the fact that most companies in this category are either expanding or capitalizing on new growth opportunities.

It is important to note that mid-cap Equity Funds may be too overwhelming or risky for first-time or inexperienced investors.

Best Mid-Cap Mutual Funds

https://www.etmoney.com/mutual-funds/equity/mid-cap/35" target="_blank" rel="nofollow">Mid-cap Funds react more vigorously to market fluctuations as compared to large-cap stocks. Hence, unlike large-cap stocks, whose performance can be judged fairly accurately from past performance, the same yardstick does not apply to mid-cap stocks. One needs to analyze a wide range of factors (quality of management, growth potential, uniqueness of offerings, etc.) to judge a mid-cap stock.

Here is a list of the top 10 equity funds from the mid-cap category.

• Axis Midcap Fund
• Invesco India Mid Cap Fund
• Kotak Emerging Equity Fund
• Franklin India Prima Fund
• L&T Midcap Fund
• DSP Midcap Fund
• Edelweiss Mid Cap Fund
• Tata Midcap Growth Fund
• Nippon India Growth
• ICICI Prudential Midcap Fund

Final Words

A well-balanced portfolio requires some degree of mid-cap stocks. Good quality mid-cap equity funds have the potential to generate superior returns (even beat inflation) than large-cap stocks in the long run. However, it requires two commitments from investors – risk-taking ability and patience to remain invested for a long duration. As they say, patience bears a golden fruit!