Best Focussed Mutual Funds for Investment in August 2024
It is a common belief among mutual fund investors that more focused investments in a small number of stocks yield better returns. According to these investors, some mutual fund schemes underperform because they spread investments broadly. For such individuals, focused mutual funds might be the right option.
What are Focussed Mutual Funds?
Focused equity mutual fund schemes according to the rules and regulations of SEBI, can invest in a maximum of 30 stocks. But unlike other fund types, these focused funds have the flexibility to invest in any sector or market capitalization. This structure resembles flexi-cap schemes. What this really does – is give lots of freedom to fund managers. He could pick stocks he believes in strongly. He can invest significant amounts in each.
Potential and Risks of Focused Funds
Since these funds have concentrated investments in fewer stocks they can offer significant returns if the manager picks the right ones. The reverse also holds true. If a few of those investments don’t work out, the fund could bleed substantially. That’s a risk you take with a concentrated portfolio. Similarly, if the fund manager makes the right call on sectors or market capitalizations that will do well, the fund can perform exceedingly well. But if they get it wrong losses could be substantial. In short, with focused funds your gains or losses are heavily dependent on the fund manager’s stock-picking abilities.
Who Should Invest in Focused Funds?
If you are ready to take more risk and can keep money invested for at least seven years, focused funds might be a good fit. They require a longer investment horizon. They are more efficient at riding out ups and downs that usually come hand-in-glove with concentrated investing.
Recommended Focused Mutual Funds for August 2024
Here are some of the best focused mutual funds to consider for August 2024:
- 360 ONE Focused Equity Fund
- SBI Focused Equity Fund
- Sundaram Focused Fund
- Quant Focused Fund
How these Funds were Chosen?
The above funds have been selected based on key parameters listed below:
1. Mean Rolling Returns: We considered daily returns for three years to understand how consistently the fund performed.
2. Predictability: Here we used something called Hurst Exponent, which tells how predictable a fund’s returns are. The higher Hurst is more stable and less volatile the fund’s returns.
3. Downside Risk: It measures how much the fund’s return has dropped below zero. We want to minimize losses during tough times.
4. Outperformance: Jensen’s Alpha was the metric used to depict the extent to which the fund had performed better than what the market had predicted, considering the amount of risk taken.
5. Asset Size: We have considered only those equity funds with at least Rs.50 crore of assets.
Conclusion
Focused mutual funds can be one of the excellent options if you are looking for potential for higher returns. Be comfortable with the risks that come with a concentrated portfolio. Funds recommended for August 2024 have been picked based on past performance. They also show consistency. They demonstrate the ability to manage risk. As always ensure that you do your own research. Consult a financial advisor to confirm that these funds align with your investment goals.
