2.Understanding Focused Equity Mutual Funds by weighing in pros and cons

Posted by Mamta on June 18th, 2019

Mutual funds schemes have been restructured by Securities and Exchange Board of India.  This has brought into existence something called as Focused Equity fund which is a brand-new type.

It is a known fact that people invest in mutual fund for saving tax. SEBI Guidelines have stipulated that a maximum of 30 stocks can be included in Focused Equity fund. It is more specific than a diversified equity fund. But what does this say about the productivity and performance of Focused equity fund.  This means higher amounts are invested in a single stock.

This concentration portfolio if selected carefully and doesn't compromise on quality can supersede the benchmark. However, it could be all or nothing too in case of negative. This could also be owing to the concentrated nature of the Focused Equity.

Understanding the term

It is important to remember that this means that focused equity fund is high returns but high risk too.  If the profit exceeds the benchmark, the loss can be major too. This makes it best for experienced investors rather than those who are individual investors who buy mutual funds online. Variance is the volatility of returns. In the case of Focused equity mutual Fund, this variance is high. This is measured through Standard deviation showing how much the annual returns on the fund might deviate. This is not like investing in tax saving mutual funds as the risk associated with the focused equity funds is as high as the profits involved.

Conclusion

Focused equity funds invest in a limited quantity of stocks. This could be large cap, mid cap or multi cap stocks. Out of the total assets, at least sixty percent can be invested through focused fund scheme. This means not distributing the assets over a large number of companies. For those who go ahead to take this huge risk of investing in focused Equity mutual funds, it is crucial to make sure that the decision is a cautious one.

These further demands that a focused equity fund approach ensures that strict analysis is done prior to investing in the stocks because of the all or none approach as it signifies the holistic performance. These kinds of focused equity online mutual funds are also called as best idea funds.

So, to sum it up a few bad choices could be tough on focused equity mutual fund. It is a high-risk factor saving which is risky too but highly beneficial if it pans out well. Invest in tax saving fund that decreases the risk factors whilst also initializing investments actively and successfully.

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