Fund of Fortnight

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This is our mutual fund recommendation. Every fortnight , we recommend one open-ended equity diversified fund that has the best potential of returns for the next one year considering its constituents remain the same. 

Tata Focused Equity Fund - Direct Plan (Growth)

Reason for recommendation

SEBI, the capital market regulator, has recently proposed some changes in the asset allocation of multi-cap funds. This has resulted in a sharp surge in small-cap and mid-cap stocks and funds dedicated to them. The situation is still fluid as the industry body is making its representation to the regulator and depending upon the outcome there may be an increased volatility in this category. But one category of equity fund that is not going to get impacted much is ‘focused fund’ that invests 65 per cent of its assets into equity and can only invest in maximum 30 stocks. Hence, it makes sense to invest in a focused fund as any outcome will not derail these funds from their original path. Tata Focused Equity Fund, one of the youngest funds in its category, is a good investment option. The fund was launched in December 2019 and is yet to complete one year. Nonetheless, in the last three-month and six-month period the fund has outperformed its peers. What has helped the fund to perform is its concentrated portfolio of 22 stocks with highest weightage on Reliance Industries that has been a clear winner in the last few months.

Going ahead, what will help the fund to perform is its portfolio that is tilted towards sectors such as energy, chemicals and technology. The fund also has major exposure to financials; however, all of them are market leaders and are trading at historically low valuation. Hence, going ahead we believe there is more room of upside surprise from these stocks and hence from the fund. Besides, for all practical purposes, the fund looks like a large-cap fund as it holds around 80 per cent of the corpus in large-cap stocks, though very concentrated. Therefore, aggressive investors with investment horizon of more than one year can invest in the fund.