Best Fund Ideas: An increasing number of investors are turning to companies focused mutual fundswhich bundle assets into a small number of high-potential stocks. The asset base for this category rose to Rs 1.43 lakh crore in the three months ended June 2024. This marked a 31 per cent increase over the previous year, according to AMFI.
These funds are also known as “best idea funds.” Experienced investors who have money to invest for five to seven years should consider them, experts say.
“Focused funds offer the potential for higher returns but come with higher risks. They lack diversification, which means poor performance in one or more selected stocks can affect overall performance,” said Ravi Singh, Senior Vice President, Retail Research, Religare Broking Ltd.
“These funds are the best option for investors with a higher risk tolerance and strong confidence in the sectors or companies they invest in,” Singh added.
What are targeted funds?
A focused mutual fund is designed to invest in a concentrated portfolio, typically including 20 to 30 stocks or even fewer. Unlike traditional mutual funds that diversify across hundreds of companies to minimize risk, focused funds focus on a select number of stocks that have been meticulously researched. This “best idea” approach is based on the belief that concentrated investments in high-performing sectors or companies can generate higher returns.
Top 5 focused funds according to Groww data
360 ONE Direct Growth Equity Fund
With a minimum SIP of Rs 1,000, this fund has generated an annualised return of 21.39 per cent over the last three years. As on August 21, its net asset value (NAV) stands at Rs 54.46 lakh.
Direct growth fund focused on quantity
This fund has delivered an annualised return of 25.37% over three years, with a minimum investment amount of Rs 1,000. Its current net asset value, as on August 21, is Rs 102.73.
SBI Focused Equity Fund Direct Growth Plan
A minimum SIP investment of Rs 500 is required for this fund, which has offered 3-year annualised returns of 15.69%. As on August 21, it had a net asset value of Rs 367.33 lakh.
HDFC 30 Focused Plan Direct Growth Fund
This fund has provided an annualised return of 30.50% over three years, with a minimum investment amount of Rs 100. Its current net asset value, as on August 21, is Rs 239.92.
Baroda-focused direct growth fund BNP Paribas
With a minimum SIP of Rs 500, this fund has generated an annualised return of 21.49 per cent over the last three years. As on August 21, its net asset value (NAV) stands at Rs 25.76 lakh.
How do targeted funds work?
Focused funds concentrate on a small, carefully selected set of securities in an effort to maximize returns. Fund managers are free to invest in companies of any size, including large-, mid-, and small-cap stocks in a variety of sectors. By using this technique, investors can gain targeted exposure to particular industries that are predicted to have strong growth. growth In the near future.
Advantages of investing in “best ideas funds”
Possibility of higher than market returns
Focused funds invest in relatively stable, high-quality stocks. By holding a relatively low number of stocks, an investor is much more likely to get better returns from a focused fund than from a mutual fund with many more investments. Since there are fewer stocks to hold within a focused fund, the investment impact of high-yield stocks will be more significant.
Misleading diversification
On the other hand, traditional mutual funds dilute the potential returns of good investments by Invest In many sectors and companies, some of which may be failures. Focused funds help investors avoid the problems associated with excessive diversification. Instead, they focus investment on the best-performing stocks.
Expert analysis
Focused funds typically spend more time analyzing and selecting stocks, as they only hold 10 to 20 companies. Focused funds typically outperform broader market indexes over a comparable period.
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