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As you can see, these schemes have a concentrated portfolio. That means that the fund manager will choose stocks based on his or her conviction and take a meaningful exposure in the stock. Such investments can pay off handsomely if the call goes right. However, if a few calls go wrong, the scheme will suffer a lot. This is the trouble with concentrated bets.
Similarly if the manager succeeds in identifying the sectors and market capitalisations ahead of the market, it will benefit the scheme a lot. If the call goes wrong, the scheme will suffer a lot. Once again this is the peril of having a concentrated portfolio. You will gain a lot or lose a lot – depending on your stock-picking skills.
Invest and Earn on ET Money – Get up to 9.5% p.a. returns
If you are ready to take more risk and have an investment horizon of around seven years, you may invest in these schemes. Here are our recommended focused equity mutual fund schemes. Follow our monthly updates to keep track of your investments. SBI Focused Equity Fund was in the third quartile for five months. Sundaram Focused Fund has been in the third quartile for five months. The scheme had been in the second quartile for four months before.
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Best focused equity mutual funds to invest in July 2024
- 360 ONE Focused Equity Fund
- SBI Focused Equity Fund
- Sundaram Focused Fund
- Quant Focused Fund
Methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the equity mutual fund schemes.
1. Mean rolling returns: Rolled daily for the last three years.
2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.
i) When H = 0.5, the series of returns is said to be a geometric Brownian time series. This type of time series is difficult to forecast.
ii) When H is less than 0.5, the series is said to be mean reverting.
iii) When H is greater than 0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series
3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.
X =Returns below zero
Y = Sum of all squares of X
Z = Y/number of days taken for computing the ratio
Downside risk = Square root of Z
4. Outperformance: It is measured by Jensen’s Alpha for the last three years. Jensen’s Alpha shows the risk-adjusted return generated by a mutual fund scheme relative to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha indicates that the portfolio performance has outstripped the returns predicted by the market.
Average returns generated by the MF Scheme =
[Risk Free Rate + Beta of the MF Scheme * {(Average return of the index – Risk Free Rate}
5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore
(Disclaimer: past performance is no guarantee for future performance.)