3 Best Focused Funds for 2024 – Top Performing Focused Mutual Funds in India

April 4, 2024 Mutual Fund

Focused Funds offer investors an opportunity to benefit from high-conviction stocks that have returns potential. Unlike other diversified equity mutual funds that hold around 50-80 stocks in their portfolio, Focused Funds limit the number of stocks in their portfolio to 30.

In this article, explore the 3 best Focused Funds for 2024. But first, here is all you need to know about the Focused Fund category.

What are Focused Mutual Funds?

Focused Funds are equity-oriented mutual funds that allocate a minimum of 65% of their total assets in equities, investing in a maximum of 30 stocks at any given point.

Diversification, as you know, is an important aspect of investing that helps mitigate the risk. As a result, most equity mutual funds hold around 50-80 stocks in its portfolio.

But on the flipside, it involves limiting allocation even in high-conviction ideas to curb any potential losses when market conditions turn volatile. Therefore, you, the investor, could miss the growth opportunity from a higher allocation to winning ideas.

Focused mutual funds can be a solution to this anomaly. Such funds focus on creating a concentrated portfolio by selecting a few stocks in which the fund manager has high conviction.

Examples of Focused Funds in India

The securities quoted are for illustration only and are not recommendatory.
AUM data as of February 29, 2024
(Source: ACE MF, data collated by PersonalFN) 

The concentrated exposure to select stocks that have high growth potential gives this category of funds the ability to clock a high growth rate as compared to the broader market.

Notably, the performance of a fund over a period of time is usually driven by a few selected stocks that usually form part of the top holdings in the portfolio.

Even when the stocks beyond the top holdings gain, they do not contribute much to the portfolio returns because of their low weightage in the portfolio.

This gives the fund managers of focused funds the confidence to focus on a few high-conviction stocks with high growth potential. The fund managers of Focused Funds usually follow a buy-and-hold strategy leading to a reduced portfolio churn.

What are the advantages of investing in Focused Mutual Funds?

One of the key benefits of investing in Focused Funds is that deploy their capital in stocks that have the potential to outperform the market. When these stocks outperform, the returns can be exceptionally high.

Top stock holdings of Focused Funds

The securities quoted are for illustration only and are not recommendatory.
AUM data as of February 29, 2024
(Source: ACE MF, data collated by PersonalFN) 

Focused Funds have the flexibility to invest across market caps viz. large-cap, mid-cap, and small-cap stocks as well as sectors, which enables diversification. In other words, these funds operate like flexi-cap fund but with a lesser number of stocks. The scheme has to mention the market segment it intends to focus viz. multi cap, large cap, mid cap, or small cap.

What are the risks involved in Focused Mutual Funds?

When one invests in Focused Funds, there is a possibility that the fund manager’s bets may not pay off as expected. Due to the concentrated nature of the portfolio a Focused Fund may witness significant downside if the fund manager misses the mark. This makes Focused Funds a risky bet as they can be highly volatile if the stocks in the underlying portfolio come under pressure.

Another key risk is that some Focused Funds may not justify the higher risk it takes by investing in a concentrated portfolio and may fail to outperform the market.

Focused Fund vs Flexi Cap Fund: What is the difference?

With no market cap or sector restriction, both Focused Funds and Flexi Cap Funds have the freedom to select from a large universe of stocks. The difference between the two lies in the number of stocks they can hold. As per SEBI mandate, the number of stocks in a Focused Fund can never exceed 30, whereas Flexi Cap Funds can invest in any number of stocks.

The Focused Fund’s strategy of holding a lesser number of stocks can turn out to be highly rewarding if the fund manager’s bets prove to be fruitful. In the case of Flexi Cap Funds these funds can offer higher degree of diversification across market phases.

An analysis of past performance suggests that category returns of Focused Funds and Flexi Cap Funds across the bull and bear phase closely align with one another, though individual scheme performance may vary significantly. Scheme selection is the key to get the most out of your investment, whether you invest in a Focused Fund or a Flexi Cap Fund.

Who should consider investing in Focused Mutual Funds?

Focused Funds are high-risk high-return investments. Therefore, they are only suitable for aggressive investor with a long investment horizon of at least 5 years. Focused Funds can form part of the Satellite portfolio as a tactical allocation strategy to boost portfolio returns.

Those looking for better stability can opt for a large-cap-oriented Focused Fund, while those aiming for higher returns by taking high risk can opt for a multi-cap-oriented Focused Fund.

How are Focused Mutual Funds taxed?

Focused Funds are equity-oriented mutual funds, and hence, they follow equity taxation. The holding period for Focused Mutual Funds from a tax perspective is 12 months. So, if investors sell their Focused Fund units before 12 months, the gains are subject to short-term capital gains (STCG) tax of 15%.

On the other hand, if they sell their Focused Fund units after completing one year, the gains are subject to long-term capital gains tax (LTCG) of 10%, but only if the gains exceed Rs 1 Lakh in a financial year.

Which are the best Focused Mutual Funds for 2024?

Let us know take a look at the 3 best Focused Funds for 2024 selected based on 3-year rolling returns:

Which are the best Focused Funds for 2024?

Past performance is not an indicator for future returns
Data as of April 01, 2024. Direct plan – Growth option considered; Returns are on a rolling basis and in %
(Source: ACE MF, data collated by PersonalFN) 

Best Focused Fund for 2024 #1: HDFC Focused 30 Fund

HDFC Focused 30 Fund is the former HDFC Core & Satellite Fund, which was originally launched in September 2004. Presently categorised as a Focused Fund, its objective is to invest in a portfolio consisting of 30 high-conviction stocks that have the potential to outperform the market over the medium to long term. The fund actively seeks attractive opportunities across various market caps and sectors while keeping an eye on valuations. While HDFC Focused 30 Fund experienced its fair share of challenges throughout its 19-year journey, its long-term performance is compelling.

Fund Snapshot – HDFC Focused 30 Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of February 29, 2024
Returns and NAV data as of April 01, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

HDFC Focused 30 Fund holds its equity exposure across market caps but with a notable inclination towards large-cap stocks. While selecting stocks for the portfolio, the fund prioritises fundamentally strong companies having competitive advantage, as well as those having track record of quality corporate governance, ESG sensitivity, and transparency. It emphasises on valuation to provide a reasonable margin of safety. HDFC Focused 30 Fund follows a buy-and-approach to select stocks with a long-term view. This strategy can offer the benefit of stability and steady growth to the portfolio.

Best Focused Fund for 2024 #2: Quant Focused Fund

Quant Focused Fund, launched in August 2008, is a Focused Fund with a bias towards large-cap stocks. It aims to invest in a maximum of 30 stocks across various sectors. While the past performance of the fund was average, it has registered significant growth over the last few years. It now stands among the top quartile performers over the longer time frames. Though the volatility registered by the fund is higher than the benchmark and the category average, it has fared well in terms of risk-adjusted returns. It held a compact portfolio of 18 stocks.

Fund Snapshot – Quant Focused Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of February 29, 2024
Returns and NAV data as of April 01, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

Quant Focused Fund selects stocks by using its proprietary VLRT framework, which assesses Valuations, Liquidity, Risk, and Timing of investments. It invests in a compact portfolio of 15-20 stocks with some exposure to Derivatives and non-equity instruments for managing risks. The fund aims to invest primarily in bluechip companies across sectors that enjoy high liquidity and are driven by strong management. Quant Focused Fund’s bias towards quality large-cap stocks along with strategic allocation to mid and small-caps has enabled it to generate robust returns in recent years.

Best Focused Fund for 2024 #3: Franklin India Focused Equity Fund

Launched in July 2007, Franklin India Focused Equity Fund is a growth-oriented Focused Fund that aims to maintain a concentrated portfolio of up to 30 stocks. The fund has experienced a strong bounce back from 2021 onwards which has helped it to scale up its performance across various time periods and outperform its benchmark and the category average. Franklin India Focused Equity Fund has also done fairly well in terms of risk-adjusted returns.

Fund Snapshot – Franklin India Focused Equity Fund

Past performance is not an indicator of future returns. The securities quoted are for illustration only and are not recommendatory.
Portfolio data as of February 29, 2024
Returns and NAV data as of April 01, 2024. Regular Plan – Growth Option considered
(Source: ACE MF, data collated by PersonalFN) 

Franklin India Focused Equity Fund focuses on identifying high-growth companies, especially in sectors witnessing above-average growth. It adopts a top-down approach to identify sectors and blends it with the bottom-up approach to pick stocks within these sectors. The fund maintains a large-cap-biased portfolio with substantial allocation to mid and small caps. It has demonstrated a robust performance track record during bull market phases wherein it stands among the top quartile performers. However, its performance during market downturns may not be the best. Nonetheless, the fund has the potential to reward investors well over complete market cycles.

This completes the list of the 3 best Focused Funds for 2024. Considering the premium valuations of the Indian equity market and the uncertain global environment, it will be better to take the Systematic Investment Plan (SIP) route when investing in the best Focused Funds.

Watch this video to find out how stepping-up the SIP investments gives a boost to your wealth:

This article first appeared on PersonalFN here