Less Is More: A Simple Take on Focused Mutual Funds

What are Focused Mutual Funds?

Focused Mutual Funds are equity mutual fund schemes that invest in a limited number of stocks, typically up to 30 (as mandated by regulations). The idea behind introducing these funds was straightforward:

• Fewer stocks

• Higher conviction

• Meaningful allocation to the fund manager’s best ideas

Unlike diversified equity funds that spread money across many names, focused funds intentionally concentrate risk to potentially enhance returns.

Some advantages of focused mutual funds:

• Greater flexibility for fund managers to express high-conviction ideas

• Higher alpha* potential due to active and concentrated positioning

• Market-cap and sector agnostic approach

• Concentrated portfolios make it easier to understand performance drivers

  * alpha means excess returns earned over the benchmark, potentially due to active management

As an example, to show the difference in holdings and historical returns, we compare some fund houses who offer Multicap, Flexicap and Focused schemes

Notes:
Data is as of 5 January 2026
Returns presented above represent rolling returns
While the different schemes are from the same fund house, they may not always be directly comparable since fund managers are different.
Source: Morningstar

While all this sounds compelling on paper, portfolio construction in practice often tells a more nuanced story

How focused are Focused Mutual Funds

Here are some things to consider before deciding to invest in focused funds:

Stock count alone can be misleading

If you look at the headline number for holdings of other mutual funds (like Flexicap), they may seem very high. However, if you go one layer deep, you will realize that the top 30 stocks cover a majority of the portfolio (for example, top 30 stocks in most Flexicap funds constitute 70-80% of the total portfolio).

This means that while focused funds are structurally more concentrated, the effective difference in concentration compared to other diversified funds may be limited to roughly 20–30% of the portfolio.

Higher concentration means higher risk – careful selection is warranted

While higher concentration and flexibility potentially means higher alpha, it could also mean higher risk (particularly in falling markets). There is also risk of manager bias. Additional diligence needs to be done on portfolio metrics like P/E ratio, industry concentration, etc.

Where do Focused Funds fit in an investor's portfolio?

Position sizing and investor temperament matter as much as fund selection in this category.

Focused funds can be a good satellite allocation in one’s mutual fund portfolio, alongside other more diversified or Largecap mutual funds. Further, only investors with longer term horizon (5+ years) should consider investing in these given the high degree of active management.

Ultimately, the alpha or additional return compared to a Flexicap or any other diversified fund has to make sense to the investor for the additional active risk that he/she is taking.

Creso Research Insights

We, at Creso, believe that choosing the right mutual fund is not about the chasing the highest returns, but evaluating multiple dimensions of performance and the underlying risk. With this in mind, we have developed an equity mutual fund scoring and ranking methodology. Read more about it at Creso Insights - Mutual Fund Ranking Framework.

The top ranked Focused Funds as per our framework are:

* Data as of 16 January 2026

HDFC Focused Fund:

Ranks in the highest quartile (for the category) in terms of trailing returns over the medium to long term. Has also outperformed the benchmark consistently over this period. All this with a very good risk-reward profile! The portfolio is overweight on Largecaps and has a sizeable allocation to the BFSI sector (typical for mutual funds) – indicating a slight affinity towards Nifty weightings (typical for all mutual funds). The fund manager is relatively new to this scheme, but has good industry experience.

ICICI Prudential Focused Fund:

Similar to HDFC, this also ranks in the highest quartile for trailing returns with an attractive risk-reward profile. The portfolio is Largecap heavy but much more diversified across sectors than HDFC.  The fund manager is relatively new to this scheme, but has good industry experience.

Invesco India Focused Fund:

In terms of trailing 3-year performance, this fund ranks in the top quartile and has sizably outperformed its benchmark. However, manager tenure and risk-reward profile slightly offset the superior fund performance. Despite sizable holdings in BFSI, the fund's portfolio is diversified across multiple sectors with industrials being a key contributor. The fund has 50-55% exposure to largecap, which is lower as compared to category peers, and also partly explains the outperformance in recent years.

We have only presented the top 3 funds here as per our ranking framework – but you can look at the entire Focused Funds universe (along with their scoring) at Creso - Powering India's Next-Gen Mutual Fund Distributors and decide which ones best suit your objectives

In conclusion, Focused Funds provide concentrated, yet diversified portfolio for investors and can be a good satellite allocation to an existing portfolio. However, an investor needs to have a long-term horizon and carefully select the fund.

Disclaimer

• The equity mutual fund rankings are based on a proprietary, rule-based methodology using data sourced from Morningstar and our predefined quantitative parameters. The rankings are intended solely for educational and informational purposes and should not be construed as investment advice, a recommendation, or an opinion on the suitability of any mutual fund scheme.

• Mutual fund investments are subject to market risks, including the possible loss of principal. Past performance and ranking outcomes do not guarantee future results. The methodology does not account for individual investor objectives, risk tolerance, financial situation, or tax considerations.

• Rankings are derived from historical data and may change over time due to market conditions, portfolio changes, or methodology updates. Investors and distributors are advised to exercise independent judgment, conduct their own analysis, and consult appropriate financial or tax advisors before making any investment decisions.

• The use of fund rankings should be only one of several inputs in the investment decision-making process and not the sole basis for selection.