Savvy investors de-risk: Focused Funds see 60% jump in flows in Feb even as all other equity funds witness a dip

On a one-year basis, the best returns are from Invesco India Focused Fund (11.93%), HDFC Focused 30 Fund (10.39 percent), DSP Focus Fund (10.25 percent) and SBI Focused Equity Fund (9.08 percent)

In February, Focused Funds saw a 60% surge in net inflows, rising to Rs 1,288 crore despite market volatility. More importantly, it was the only category of equity funds that saw a month-on-month jump in flows. As of February 28, 2025, the category has net assets under management of Rs 1.3 lakh crore.

Focused Funds have a concentrated portfolio of around 20-30 stocks – regulations cap it at 30 -- while targeting high-conviction bets. These are considered higher in the risk spectrum because of their higher concentration levels, however, the move to Focused funds is actually a de-risking strategy in the current market scenario, experts said.

In the ongoing correction in the market, the broader market has underperformed miserably, with a small segment of large-cap stocks holding up well.  year-to-date, Nifty 50 has, in fact, been the best hiding place with the index losing the least at 5.50%, while broader indices like Nifty 500 losing nearly 10% and Nifty Small-cap 100 losing 21%.   This makes active funds with concentrated bets, an ideal place to capture reasonable returns with limited risk of loss, according to experts.

While there is a perception of “high risk” in the Focussed category as compared with other diversified equity fund categories,  the current market scenario make this a smarter choice, mutual fund experts said.

Vaibhav Shah, Head – Products, Business Strategy & International Business, Mirae Asset Investment Managers (India) notes that focused is a very interesting category. “The nature of the category allows for only about 30 stocks maximum. Most fund houses run 25-30 stocks within this. Since it's a focused category, some of your bets will have higher weightages of up to 7-8%,” he said.

Further, for retail investors, focused funds offer a compelling alternative to portfolio management services (PMS) but at a lower investment threshold. “Focus funds offer a higher concentration similar to a PMS, but with a much lower ticket size, as low as Rs 5,000. So, it's cost-effective for retail investors, offering a PMS-like concentration with a smaller investment size,” he added.

“The size of the focus fund category itself is significantly smaller than the flexi-cap or other categories. So, even a small increase in inflows can have a noticeable impact on the overall size. There's no specific reason we can pinpoint for this increase in flows, but it could be a result of changing investor sentiment or other factors,” he further added.

In a previous conversation with Moneycontrol in August last year, Tata AMC’s Meeta Shetty had said that “(Going ahead) the markets will probably become very bottom-up stock picking kind of market, and very stock-specific movement possibly we will see going ahead. And that kind of scenario actually plays out very well for a focused category,"

High risk, high reward

Shah further highlighted that focused funds often lean towards large-cap or flexi-cap-biased portfolios, with a mix of mid and small caps that can drive absolute returns. However, managing these funds as they grow in size becomes more challenging because of the limit on the number of stocks held.

Among the largest focused funds, the SBI Focused Equity Fund - Regular Plan - Growth, with assets under management (AUM) of Rs 32,929.18 crore, has delivered 16.26% returns over five years and 12.83 percent over ten years. Similarly, the HDFC Focused 30 Fund - Growth, managing Rs 15,515.87 crore, delivered 26.02 percent returns over five-year period and 13.22 percent over a 10-year period.

Despite recent market fluctuations, some funds have demonstrated strong resilience over the long term. The ICICI Prudential Focused Equity Fund - Regular Plan - Growth, with Rs 9,532.60 crore in AUM, reported nearly 25 percent returns over five years. Meanwhile, the Franklin India Focused Equity Fund - Growth, which manages Rs 10,907.40 crore, showed 21.34 percent returns over five years.

On a one-year basis, the best returns are from Invesco India Focused Fund (11.93%), HDFC Focused 30 Fund (10.39 percent), DSP Focus Fund (10.25 percent) and SBI Focused Equity Fund (9.08 percent). The overall category has given returns of around -10.2 percent YTD.

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