Top 10 best performing focused mutual funds - Unlock the potential of strategic approach to equity investing

Let's explore the features, benefits, and risks of focused mutual funds and discover the top 10 best performing focused mutual funds.

Focused mutual funds, a category of equity-oriented mutual funds, have garnered significant attention for their concentrated investment strategy. By limiting the number of stocks in their portfolio, these funds aim to maximize returns through targeted exposure to high-conviction bets. But does this strategy fit your investment needs?

Let's explore the world of focused mutual funds to understand their features, recent trends, and whether they deserve a place in your portfolio.

Key Features of Focused Mutual Funds

1. Concentrated Portfolio: Unlike diversified equity funds, focused mutual funds invest in a maximum of 30 stocks, as mandated by SEBI (Securities and Exchange Board of India). This allows fund managers to focus on high-potential opportunities.
2. Flexibility Across Market Caps: These funds are not restricted to a specific market capitalization and may invest in Large-Cap, Mid-Cap, or Small-Cap stocks depending on market conditions and the fund's strategy.
3. High-Conviction Strategy: With fewer stocks in the portfolio, fund managers rely heavily on research and conviction to pick securities that they believe will outperform over time.
4. Potential for Higher Returns (and Risks): The concentrated nature of focused funds can lead to significant gains during favourable market conditions but may also expose investors to higher risks during downturns.
5. Taxation: As equity-oriented funds, they qualify for equity taxation, with a short-term capital gains tax of 15 per cent (if held for less than a year) and long-term capital gains tax of 10 per cent (beyond Rs 1 lakh annually if held for more than a year).

Top 10 best-performing focused mutual funds based on 3 year returns

Top Performers Based on 3-Year Returns

1. HDFC Focused 30 Fund
   • Analysis: This fund stands out as the leader in terms of 3-year returns (27 per cent). With the highest AUM of Rs 14,968.50 crore, it demonstrates strong investor trust and stability. It also boasts competitive returns across 1-year (35 per cent) and 5-year (25 per cent) periods, reflecting consistent performance.
2. Mahindra Manulife Focused Fund
   • Analysis: This fund ranks second in the 3-year return category with 23 per cent. Despite a relatively modest AUM of Rs 1,790.90 crore, it has delivered robust 1-year returns (35 per cent), suggesting recent outperformance.
3. Invesco India Focused Fund
   • Analysis: Matching Mahindra Manulife in 3-year returns, this fund's 1-year return of 53 per cent is the highest among its peers, indicating excellent recent performance. Its mid-level AUM of Rs 3,293.20 crore suggests growing investor confidence.

Points to Remember

1. Higher Risk: The concentrated portfolio means higher exposure to individual stocks, increasing risk during market downturns.
2. Fund Manager Expertise: The success of focused funds heavily depends on the fund manager's ability to pick the right stocks and sectors.

Conclusion: Should You Invest?
Focused mutual funds can be a compelling choice for investors seeking targeted exposure to high-potential stocks.

• Investors with a long-term horizon: Funds like HDFC Focused 30 Fund and ICICI Prudential Focused Equity Fund offer consistent performance over 3-5 years.
• Short-term growth seekers: Funds like Invesco India Focused Fund and Bandhan Focused Equity Fund show strong recent momentum.
• Risk Tolerance: Focused funds carry higher risk due to their concentrated portfolio strategy, making them suitable for experienced investors with a higher risk appetite.

Disclaimer: The article is for informational purposes only and not investment advice.