Focused Mutual Funds

As the name suggests, focused funds usually do not follow the principle of bulk diversification. These funds invest in a limited number of stocks, typically focusing on high-quality companies. According to SEBI’s categorisation framework, focused funds are open ended equity schemes that can invest only in a maximum of 30 stocks, with a minimum allocation of 65% of total assets in equity or equity-related instruments.

In focused funds, the stock selection by the fund manager plays a critical role because these funds invest only in a limited number of stocks. A single poor stock selection can negatively affect the overall performance of the portfolio. Therefore, it is important to check the fund manager's track record and investment style before investing. 

Similar to any other mutual fund scheme, money from various investors is pooled together and invested across a maximum of 30 stocks based on the fund's objective. In this scenario, the stock selection by the fund manager is crucial, as they must identify specific companies that align with the fund’s investment objective, while maintaining a minimum allocation of 65% of total assets in equity or equity-related instruments.

Once the minimum equity exposure is met, the remaining assets may be directed towards other instruments. The core objective of these funds is to achieve capital appreciation by concentrating on high-quality assets rather than broad market diversification.

With the Paisabazaar app, you can explore different types of mutual funds and invest seamlessly. Follow these steps to invest in focused funds:

• Step 1: Download and sign up/log in to the Paisabazaar app.
• Step 2: On the dashboard, select the ‘Mutual Funds’ option.
• Step 3: Browse or search for the focused fund you want to invest in.
• Step 4: Choose how you wish to invest in these funds – SIP or lump sum.
• Step 5: Complete your KYC to start investing

The taxation for focused mutual funds is the same as that of other equity funds.

• If units are held for less than a year, Short-Term Capital Gains (STCG) apply and gains are taxed at 20%.
• For units held for more than 12 months, Long-Term Capital Gains (LTCG) apply at 12.5%, with a tax exemption of ₹1.25 lakh; gains exceeding this threshold are taxed.