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Introduction of Focused Fund
Focused Mutual Funds invest in a maximum of 30 stocks as per SEBI guidelines. These are open-ended funds having no lock-in period. The meaning of Focused Funds is derived from how these funds work. They invest in selected stocks after thorough analysis and these funds follow the “Go for quality” approach. So, they select the best stocks to provide the investors with the highest return possible.
What is a Focused Fund
As per SEBI, Focused Funds can invest in a maximum of thirty stocks. It has to invest at least 65% of its AUM in equity and equity-related instruments. A Focused Fund is a fund or scheme which invests the assets under management (AUM) with a particular investment objective in mind. Focused Funds can invest across segments like Multi-cap Funds. These funds can invest in Large-cap, Mid-cap, and also Small-cap companies.
How do Focused Funds Work
Focused Funds invest in instruments that are related to each other in some way or the other. These funds are concentrated funds that invest in a limited number of stocks.
This approach gives the fund manager the provision to closely track a particular segment. Thus all Focused Funds are invested after careful research and analysis. You can have precise exposure instead of a diversified portfolio.
Advantages of Focused Funds
The advantages of Focused Funds are as follows:
- Higher return potential: In Focused Funds, the asset under management (AUM) is deployed in a limited number of stocks that the fund manager believes will outperform. The fund manager believes that a concentrated portfolio can perform well in comparison to a highly diversified portfolio, however this feature leads to a higher volatility as well on account of the lower number of stocks.
- Invest in multiple segments: Focused Funds invest across segments and markets. They invest in companies irrespective of its market capitalization or the sector or industry it belongs to. So, they are not limited to invest in a certain segment or industry. They can invest in the AUM as per the focus of the fund.
- Handpicked stocks: One of the most important advantages of investing in Focused Funds is that the stocks/financial instruments in the fund are carefully chosen by the fund manager. As the number of stocks that can be included in the fund is limited, each stock is handpicked after thorough research.
Who Should Invest in Focused Funds
Focused Funds are ideal for people:
- Who are having a higher risk appetite.
- Those who want to invest in a concentrated portfolio.
- Who can invest for a minimum of five years in these funds.
Things to Consider Before Investing in Focused Funds
There are four things you need to consider before you invest in Focused Fund:
- Since these funds can only invest in thirty stocks, they need to invest a big amount in each of these stocks. This increases the risk factor as if even one stock performs poorly, it can affect the returns of the entire portfolio.
- The returns of Focused funds are generally higher than that of a diversified fund. However, if the market rally is highly broad-based, then the returns you earn from your Focused Funds may seem lower as compared to the risk you are taking.
- You always need to check and compare the expense ratio. The expense ratio is the amount you pay for getting services from the fund house. This reduces the return you generate from one scheme.
How Can you Invest in Focused Funds through Nivesh
Any investor can enjoy the benefits of investing through Nivesh in the following easy steps:
- Create an account in Nivesh by providing your basic KYC details. (If you already have an account then just login into your account)
- On your portfolio page click on the Buy New tab at the right top corner of the screen.
- Select the category and choose the funds you want to purchase.
- If you already know the name of the fund to buy, then you can search the particular fund through Quick Order.
- Fill the transaction details and confirm. You can place up to 5 orders in one go.
- You can make payment through your registered account through UPI, Direct Pay, or NEFT/ RTGS , Bank Mandate or Cheque. For same-day NAV, select UPI, Direct Pay or NEFT / RTGS as other payment options may take a few days to clear, Nodal account takes about 1-2 days to clear payment from the approved mandate and cheque takes about 2-5 days in clearing due to which you will not get the same-day NAV.
Frequently Asked Questions (FAQs)
1. Are Focused Funds Risk-Free?
No, there is a certain amount of risk these funds have. The risk mainly comes from the equity investment.
2. What is the Minimum Amount to Invest in a Focused Fund?
You can start investing in Focused Funds via SIP with just a mere Rs.100. For lump sum investment, the minimum amount you would require is Rs. 500. The minimum amount of investment varies from one scheme to another.
3. How Long Should you Invest in a Focused Fund?
You must stay invested for at least 5 to 7 years in any Focused Funds to get the actual benefit. Since the risk factor is moderately high, staying invested for the long term can increase the return.
4. Can we Redeem Focused Funds Anytime?
Yes, you can withdraw these funds anytime. However, there is an exit load for withdrawal within a year but that also varies as per the scheme.
5. Is There any Tax on Focused Fund?
Yes, you will have to pay capital gain taxes on the profits from these funds. Whether it will be short-term capital gain or long-term capital gain tax gets decided as per the tenure of your investment. If you stay invested for 1 year and less than that, then you need to pay 15% short-term capital gain tax.
In case you stay invested for more than a year, then you will be charged at 10% as per the long-term capital gain tax rate without indexation benefit. However, the long-term capital gain is levied on profits above Rs. 1 Lakh.
