Concentrated mutual funds are better
Diversification reduces risk but kills returns. Generally, mutual funds hold as many as 50 to 90 stocks in their portfolio, and for good reason. Mutual funds are supposed to be the investment vehicle of choice for Indian retail investors (defined as people who cannot take much risk). SEBI wants it that way and has pushed regulations to make it happen. SEBI regulations does not allow a concentration of more than 10% of the fund’s AUM into any one security (stocks, debenture or bond).
But there’s a new set of investor, the one between retail and HNIs.
This is not unique to India; it’s a common macroeconomic trend. Take a look at the graph below.
As our economy matures, the income level of upper-middle classes raises and so does their risk tolerance. Let’s call this segment The Matured Investor.
The Matured Investor usually has an investment corpus between Rs 7 and 40 lakhs, is return hungry, has an income stream and is generally a long term investor. If you think you are one, you can allocate a large chunk of your mutual fund to concentrated mutual funds. Three of the our favorite concentrated mutual funds are:
- Motilal Oswal Midcap 30
- JM Core 11
- DSP BlackRock Focused 25
If you are a Minance Partner, ask your Investment Manager about these funds or send us an email at hello@minance.com
