Time to look at mutual funds with concentrated portfolio

For investors, who believe stock-picking capabilities of fund managers will be crucial in this market, equity schemes with a concentrated portfolio are an option.

“Earnings growth has been lacklustre for the past three years, but valuations have become richer. Select sector leaders and companies at the cusp of a turnaround are likely to outperform. This alpha generation opportunity is likely to be higher in a concentrated portfolio as the conviction and size of bets remain high,“ said Anand Shah, deputy CEO, BNP Paribas Mutual Fund.

Focussed funds, such as Motilal Oswal Multicap 35 Fund and Axis Focused 25 fund, have delivered higher returns than schemes in the category in the past year. These schemes typically hold 18-25 stocks in their portfolios with the top 10 stocks accounting for as much as 55-67% of their portfolio. But a concentrated portfolio could have its share of risk, warn money managers.


When the fund manager goes right, you get higher-than-market returns, but if he goes wrong, you could end up losing more. “Do not allocate more than 20% of your portfolio to this but if he goes wrong, you could end up losing more. “Do not allocate more than 20% of your portfolio to this category of funds,“ says Amol Joshi, founder, Plan Rupee, a mutual fund advisor.