Mutual Funds

NFO: Kotak Focused Equity - A concentrated multi-cap from Kotak MF

Nalinakanthi V | Updated on July 07, 2019 Published on July 07, 2019

The fund, at any given point, invests in not more than 30 stocks

Thanks to a buoyant stock market, the past few months have seen a slew of new fund launches. While we’ve seen some novel, interesting themes emerge, many of the new issues haven’t been unique. Kotak Mutual Fund’s new offering, Kotak Focused Equity, offers a unique proposition. The fund is open for subscription till July 9.

Being a multi-cap fund, Kotak Focused Equity will have the flexibility to juggle allocation across small-, mid- and large-cap stocks. The scheme will have a concentrated portfolio. At any given point, it will invest in not more than 30 stocks. In contrast, Kotak Standard Multicap currently holds around 55 stocks in its portfolio.

While a concentrated portfolio shows higher conviction and will pay off if the key bets play out well, the flip side is that in the event of a steep correction in the price of the top holdings, the downside risk to the fund’s performance can be significant.

Fund themes

The scheme has identified five broad themes to start with. One is stocks in the financial services space. Two, the fund is hoping to ride on the capex recovery cycle and investment into capacity creation, which will have a positive rub-off on sectors such as capital goods, auto ancillaries, construction and related sectors such as cement, chemicals and industrials. Higher consumer spend with an increase in disposable income should benefit consumption themes such as FMCG and retail, which the fund is seeking to capitalise on. Two other themes that find a place in Kotak Focused Equity’s investment mandate are clean, renewable energy and export beneficiaries such as IT and pharma.

The fund’s performance will be benchmarked to the Nifty 200 TRI Index. Being an open-ended fund, investors have the option of subscribing to the scheme even after the NFO period. If you wish to redeem your investment within a year from the date of investment, you will have to part with 1 per cent of the corpus as exit load.

Category performance

The market is aflush with focussed funds that are betting on a concentrated portfolio strategy. Several large- and mid-cap schemes with a mandate of running a concentrated portfolio were renamed as Focussed Equity schemes last year. They include SBI Focused Equity, Franklin India Focused Equity, Axis Focused 25, ICICI Prudential Focussed Equity, IDFC Focused Equity and L&T Focused Equity. While most of these schemes are multi-cap ones with the flexibility to switch allocation across market-cap curves, there are some large-cap funds, too. For instance, Sundaram Select Focus, IDBI Focused 30 Equity and Motilal Oswal Focused 25 invest almost a third of their assets in large-cap stocks.

Multi-cap-oriented focussed equity schemes have, on an average, delivered 8 per cent gains over the past year. Over three- and five-year periods, they have managed to deliver average returns of 13.3 per cent and 12.8 per cent, respectively. Those that bet on large-cap stocks, with an exception of Motilal Oswal Focused 25 and Sundaram Select Focus, have delivered tad lower than their multi-cap peers.

The writer is an independent financial consultant

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