For Indian investors seeking equity market exposure through mutual funds but willing to embrace a higher degree of risk, focused mutual funds present a compelling, albeit niche, avenue. While conventional categories like large-cap, mid-cap, and small-cap funds dominate portfolios, a segment of savvy investors is looking beyond these options for potentially amplified returns.
What Exactly Are Focused Mutual Funds?
Focused mutual funds are a distinct category where the fund manager concentrates investments in a limited basket of stocks. As per regulatory guidelines, these schemes can hold a maximum of 30 stocks and must allocate at least 65% of their corpus to equity and equity-related instruments. This concentrated approach is a double-edged sword, offering the potential for significant gains from a few high-conviction picks while simultaneously amplifying risk.
This category is not among the most popular, with data as of 30 November 2025 showing only 28 schemes in existence. However, they collectively manage a substantial Assets Under Management (AUM) of ₹1.74 lakh crore, indicating dedicated interest from a segment of the investing community.
The Risk and Reward Proposition of Concentrated Portfolios
By design, focused funds are inherently riskier than their diversified counterparts. With assets locked into a select few companies, the fund's performance is heavily dependent on the success of those specific stocks. This contrasts with large-cap or flexi-cap funds, which enjoy greater flexibility to diversify across a wider range of stocks and market capitalisations, thereby mitigating company-specific risk.
Why would an investor choose this path? The reasons are multifaceted. Some investors possess strong conviction in a handful of companies and prefer to back their belief through a concentrated fund. Others may actively wish to avoid over-diversification, which can sometimes dilute returns. Furthermore, after allocating to standard equity fund categories, investors might look to focused funds for additional portfolio alpha.
However, experts caution that these funds are not a mandatory allocation. Alekh Yadav, Head of Investment Products at Sanctum Wealth, advises, "Investors should evaluate focused equity funds in the same manner as any other mutual fund—by assessing the fund manager’s track record, investment strategy, consistency of performance, and behaviour across market cycles." He highlights the key differentiator: "The concentrated nature of focused funds can result in relatively higher volatility and stock-specific risk."
Top Performers in the Focused Funds Space
Despite the risks, several focused mutual fund schemes have delivered impressive returns. Based on data from AMFI with 3-year returns as on 2 January 2026, a handful of funds have generated annualised returns exceeding 19%.
Notable top performers include:
- ICICI Pru Focused Fund leading with a 23.49% return.
- HDFC Focused Fund delivering 21.46%.
- Invesco India Focused Fund at 21.67%.
- Other strong performers are DSP Focused Fund (19.78%), Bandhan Focused Fund (19.24%), and Mahindra Manulife Focused Fund (19.10%).
This demonstrates that skilled fund management in a concentrated strategy can yield substantial rewards for investors with a matching risk appetite.
Disclaimer: This information is for educational purposes only. Investors are strongly advised to consult with a SEBI-registered investment advisor before making any investment decisions.
