Focused Equity Fund

A Focused Equity Fund is an open-ended equity mutual fund category defined by SEBI that mandates investing in a maximum of 30 stocks — creating a high-conviction, concentrated portfolio where each position is expected to contribute meaningfully to returns. Unlike diversified equity funds (which may hold 50 to 100 stocks), focused funds concentrate the fund manager's best ideas into a smaller universe — amplifying the impact of correct stock calls while equally amplifying the risk of incorrect ones. SEBI requires focused equity funds to invest at least 65% in equity and equity-related instruments, with the portfolio concentrated in a maximum of 30 stocks. The fund manager must select these 30 stocks with high conviction across any market cap segment (large cap, mid cap, or small cap) based on their investment thesis. Focused funds are suitable for investors with a higher risk tolerance who believe in the fund manager's stock-picking ability and are comfortable with the higher volatility that concentration brings. In India, several AMCs offer focused funds — including Nippon India Focused Equity Fund, SBI Focused Equity Fund, and HDFC Focused 30 Fund — each with distinctive stock selection approaches. Historical performance data shows that focused funds can generate significant alpha relative to diversified benchmarks during periods when the manager's conviction calls play out, but they can also significantly underperform during periods of market leadership rotation away from the concentrated positions.