Focused MFs’ asset base rises 31% to Rs 1.43L cr in Q2

New Delhi: Focused mutual funds, which invest in a concentrated portfolio of stocks, are gaining traction among investors with the asset base of the category growing to Rs1.43 lakh crore in three months ended June 2024, marking an increase of 31 per cent from a year ago. Interestingly, some of the focused funds offered by the mutual fund houses such as Invesco India Focused Fund, Mahindra Manulife Focused Fund, JM Focused Fund and HDFC Focused 30 Fund delivered a remarkable return of 40-60 per cent in the past year, industry data showed.

Focused funds are a type of mutual fund where the fund manager selects a concentrated portfolio of stocks, typically limited to a maximum of 30 due to regulatory constraints. This requires the fund manager to be highly skilled in stock selection, as they need to identify the best investment opportunities across the market without bias toward any specific market cap or sector. According to data with the Association of Mutual Funds in India (Amfi), the assets under management (AUM) of the focused funds were at Rs1.43 lakh crore in June quarter 2024-25 as compared to Rs1.09 lakh crore in April-June FY24.

This growth highlights the appeal of focused funds as an alternative to portfolio management services (PMS), especially with recent tax changes that make PMS less attractive due to higher costs and tax implications, Feroze Azeez, Deputy CEO, Anand Rathi Wealth Ltd, said. “With the increase in taxation on both small-term capital gain tax and Long-Term capital gain tax, PMS portfolios are expected to see a drop in post-tax returns. For example, a PMS portfolio generating a pre-tax return of 14 per cent could see post-tax returns drop from 11.73 per cent to 11.29 per cent. This shift could lead to fund managers churning portfolios less frequently, which in turn will be affecting returns for investors,” he added.