Everything That You Need to Know About Focused Funds

Understanding different types of investment products will help you make the right choice. One such investment product, which you should have sound knowledge about, is focused fund.

What is a focused fund?

A focused fund is a fund, which has a small number of shares in its portfolio. It invests in a maximum of 30 stocks and has a focused principle of investment.

Other equity funds hold about 50-100 stocks in their portfolio but a focused fund will only have a few stocks.

Why should you invest in a focused fund?

The biggest advantage of investing in a focused fund is the ability to generate high returns. Since the amount is invested in a limited number of shares that show potential for growth, there is a possibility of generating high returns on the same.

Moreover, it offers optimal diversification. With the fund focusing on a few stocks only, there is complete diversification because there are limited options to hit the bull’s eye.

Who should invest?

Investors with a high-risk appetite should invest in the fund since there are limited numbers of stocks to invest in, there is a possibility of higher returns but there is also a high risk of the investment strategy going wrong. Hence, those who can bear higher risk should opt for these funds.

Additionally, any investor looking for diversification can consider investing in the funds. It will diversify the investment portfolio and add some of the best stocks to it.

Is there any tax liability?

The focused fund invests into the stocks of a company. Hence, there will be a tax liability for long-term and short-term capital gain.

Short-term capital gains will be taxed at the rate of 15% and long-term capital gains will be taxed at the rate of 10% over an amount exceeding INR 1 lakh in a financial year.

Things to consider while investing

Firstly, you need to understand that the fund carries high risk. This means, if you can tolerate a high risk on your investment, you can choose these funds.

The funds have the ability to generate strong returns but it might take some time. With a restricted number of stocks to invest in, there is a high risk-return trade-off.

If you are a first-time investor, these stocks are not for you. You might want to invest in other funds that carry a lower risk. Try to understand the investment principle before making your decision.

How should you select a focused fund?

There are some top focused funds, which have generated high returns over a period. In order to choose a fund to invest in, you need to compare its performance over the number of years, which could be anywhere between five years to ten years.

You must analyze how the fund has performed and make a well- informed choice. You can also study the expected results of the fund and compare the same with your risk appetite.

Undoubtedly, focused funds have the ability to generate high returns but they also carry high risk. Diversify your portfolio by investing in these funds and grow your wealth over a long time duration.

What are the best Focused funds?

We have listed down few of the best mid-cap funds that you can think about investing. For more details, set-up your account and talk to our financial advisor today:

• HDFC Focused 30 Fund Growth
• Axis Focused 25 Fund Growth
• ICICI Prudential Focused Equity Fund Growth
• IDFC Focused Equity Fund Growth
• Aditya Birla Sun Life Focused Equity Fund Growth

Common mutual funds investment mistakes

To ensure the investments you make help you toward a financially secure future, you must avoid certain investment mistakes that a lot of newcomers end up making. Mistakes such as:

Investing in Lump Sum Money:

Investing a huge chunk of your money in one go might seem like a good idea for some investors but it is not a good method. Your ability to manage market risks and to carry out asset allocation is deeply reduced if you make a lump sum investments. Having a systematic investment plan helps you invest your money periodically and optimise your returns based on the financial goals you want to achieve.

Start Panicking:

Many investors start panicking when the markets go down and take an impulsive decision to sell off their portfolio. Instead take a step back, read about what is happening in the market, talk to other investor friends, advisors or colleagues. Don’t take any steps until you have all the necessary information and have done enough research to form an informed decision.

To read the entire list of common mistakes that you should avoid, check out 10 mistakes to avoid while investing in mutual funds.

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FundsInn is AMFI certified company that offers various services including Financial planning and Assets management. We recommend a personalised investment portfolio keeping your financial goals and investments in mind.

Our financial advisors understand your current financial status and suggest a financial plan that suits your needs. You can initiate different types of transactions including Lump sum investment, SIPs (Systematic Investment Plans), in various schemes available on our portal.

If you are looking for guidance then get in touch with our financial advisor and get started today.