Top targeted mutual funds to invest in 2022

Over-diversification is blamed by many mutual fund investors for the poor performance. To provide greater risk-adjusted returns, mutual funds often diversify as much as possible. You should invest in mutual fund schemes with a focused or concentrated portfolio if you believe a concentrated portfolio will be more beneficial to you. If you believe in a concentrated portfolio, our recommended list of targeted funds is for you. This month's list has remained unchanged. One of the recommended plans, Motilal Oswal Focused 25 Fund, was in the fourth quartile. Keep an eye on our monthly updates to stay on top of your plans. Concentrated equity mutual fund schemes are required by SEBI to invest in a portfolio of no more than 30 stocks. These funds have no constraints on where they can invest, similar to flexi cap funds, and can invest in any market capitalizations or industries. If you're interested in learning more about concentrated equity plans, you can do so here.



As you can see, these funds have a narrow portfolio of investments. That means the fund manager will select stocks based on his or her convictions and invest a significant amount of money in them. If the call goes well, such bets can be quite profitable. The investment plan, on the other hand, comes with its own set of dangers. The plan will be severely harmed if a few calls go incorrect. A diverse portfolio may provide superior results in such a situation.

Similarly, the scheme will benefit greatly if the management is successful in identifying industries and market capitalizations ahead of the market. If the call is made incorrectly, the strategy will be severely harmed. This is another another disadvantage of having a concentrated portfolio. Depending on your stock selection skills, you will make a lot of money or lose a lot of money.

You can invest in these schemes if you are willing to take on additional risk and have a seven-year investment horizon. Here are some of our preferred focused equities mutual fund plans.

Best equity mutual funds are :

• Axis Focused 25 Fund 
• IIFL Focused Equity Fund 
• SBI Focused Equity Fund
• Motilal Oswal Focused 25 Fund 

Technique:
For shortlisting equity mutual fund schemes, We used the following criteria -

1. Mean rolling returns: Daily rolling returns over the last three years.

2. Consistency in the last three years: The Hurst Exponent, H, is being used to calculate a fund's consistency. The H exponent is a measure of a fund's NAV series' unpredictability. When compared to other funds, funds with a high H have lower volatility. The H exponent is a measure of a fund's NAV series' unpredictability. When compared to funds with a low H, funds with a high H have lower volatility.

I) The sequence of returns is considered to be a geometric Brownian time series when H = 0.5. It's difficult to predict these kinds of time series.
II) The series is said to be mean when H is smaller than 0.5.
III) The series is said to be persistent when H is bigger than 0.5. The greater the series' tendency, the higher the value of H.

3. Downside risk: For this metric, we solely took into account the mutual fund scheme's negative returns.

X =Returns less than zero
Y = The sum of all X squares
Z = Y/the number of days it took to calculate the ratio

Risk on the downside = the square root of Z.

4. Outperformance: Jensen's Alpha measures it over the last three years. Jensen's Alpha compares a mutual fund scheme's risk-adjusted return to the expected market return predicted by the Capital Asset Pricing Model (CAPM). Higher Alpha implies that the portfolio has outperformed the returns expected by the model.

Average returns generated by the MF Scheme = [Risk Free Rate + Beta of the MF Scheme * {(Average return of the index - Risk Free Rate}

5. Asset size: For Equity funds, the threshold asset size is Rs 50 crore.

(Disclaimer: past performance is no guarantee for future performance.)


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