Differences between focused funds and diversified mutual funds

A diversified mutual fund gives you exposure to a basket of 50-100 stocks with low volatility, while a focused fund gives you exposure to a maximum of 30 stocks with high volatility. As a beginner, it is recommended that you start with diversified equity mutual funds.

A mutual fund scheme gives you an opportunity to diversify your investment among multiple stocks. The extent of diversification depends on the choice of a scheme: diversified equity fund, focused fund, or sectoral/thematic fund. This article will discuss diversified equity fund and focused fund, and evaluate which one a beginner should choose.

What is a diversified equity mutual fund?

A diversified equity mutual fund invests in a basket of 50-100 stocks, depending on the scheme objective. The scheme may invest in large, mid, small-cap stocks or a combination of these (multi-cap or flexi-cap fund). The objective of the fund manager is to outperform the benchmark and generate alpha for investors.

What is a focused equity fund?

A focused equity fund is an open-ended scheme that invests in a maximum of 30 stocks. It can invest in stocks across market capitalisation just like a flexi-cap fund. It is a form of a concentrated flexi-cap fund.

Also Read: Different Types Of Funds Available Under Mutual Funds

Now that we know what a focused fund is, let us compare diversified funds and focused funds.

Focused funds vs. mutual funds

What should a beginner choose?

Focused funds are for investors who have knowledge of mutual funds and are already investing in equity funds for their investment goals. A beginner should start with diversified equity funds based on their investment objectives.

Also Read: Mutual Funds Vs Shares - Which One To Choose?

Some of the best equity funds to invest in are listed below.

Diversified large-cap equity funds

Focused equity funds

Important note:

• The above returns are as of 28 March 2022.
• The funds have been ranked based on five-year performance
• The returns are for direct plans with the growth option.
• The one-year returns are absolute. The three and five-year returns are CAGR.

Also Read: How To Choose An Equity Mutual Fund

As a beginner, you should always invest for the long term to benefit from the power of compounding. You can start a systematic investment plan (SIP) to benefit from Rupee Cost Averaging.