HSBC Focused Equity NFO: For those playing the long-term game

HSBC Mutual Fund’s new fund offer — HSBC Focused Equity Fund — is open for subscription until July 15.

It being an open-ended fund, the scheme will also reopen for ongoing purchase shortly after the NFO closes for subscription.

The offering is, however, not unique. There are already more than 20 focussed funds available in the market.

Investment strategy

SEBI mandates that the focussed category funds invest in a maximum of 30 stocks. In line with this, the scheme aims to seek long-term capital growth through investments largely in equity and equity-related instruments of up to 30 companies.

The fund will invest across market capitalisations, giving it a multi-cap flavour. The fund will be benchmarked against the BSE 200 TRI. The scheme will follow a top-down approach for sector selection, but a bottom-up approach for stock selection.

The key factors that go into picking a stock will be dominance in the sector, sustainable profitability and reasonable valuations of the companies.

HSBC Focused Equity will be managed by Neelotpal Sahai, Head of Equities, and Gautam Bhupal, Fund Manager.

Sahai believes the current disruption due to the pandemic makes it an opportune time for a fund in the focussed category.

“In the past, disruptions such as the global financial crisis, taper tantrum, implementation of the GST and the IL&FS NBFC crisis resulted in making strong companies stronger and big companies bigger.”

The benefits from the dominant companies in which the fund will invest now will be reaped only over medium to longer terms, he added.

Thus, it is suitable only for investors with an investment horizon of 3-5 years and above.

Further, focussed funds typically have concentrated holdings as they take exposure to fewer number of stocks. The success of these schemes depend highly on the right stock picks by the fund manager. Therefore, only investors with moderate to high risk appetite should consider this category.

Other funds

Almost all funds in the focussed category have outperformed the bellwether Nifty 50 and the broader Nifty 500 indices in the long run.

The average compounded annual growth rate (CAGR) of focussed funds has been about 3.03 per cent, 6.53 per cent and 13.34 per cent for three-, five- and seven-year periods, respectively.

During the same periods, the Nifty 500 TRI delivered returns of 2.07 per cent, 5.42 per cent and 10.82 per cent, respectively, while the Nifty 50 TRI clocked 4.37 per cent, 5.60 per cent and 9.95 per cent, in that order.

Axis Focused 25 and Motilal Oswal Focused 25 are two of the top-performing funds in the short as well as the long term.