What is the difference between a large cap equity fund and an equity focused fund? Which one is a better option for investment?
Large-cap Funds:
These are equity funds that invest a minimum of 80% in large-cap companies.
These funds invest primarily in larger & more established companies.
These are in the lowest-risk category amongst equity funds as larger companies tend to have less volatile earnings and stock price volatility than smaller companies.
Large-cap equity funds are suitable for Conservative Investors who wish to invest in equity but are not comfortable with the higher stock price volatility associated with smaller companies.
Equity Focused Funds:
Focused funds take more concentrated exposures in stocks, as compared to the diversified approach more common to mutual funds. Focused funds typically follow a multi-cap approach.
These funds offer higher risk-return than diversified funds.
This fund category essentially includes the top ideas of the fund management team and can outperform or underperform more diversified funds based on how well the investment teams call pans out in the markets.
Focused funds are suitable for Aggressive Investors seeking higher returns on their portfolios, who are comfortable with the potential higher volatility of more concentrated portfolios.
The best investment option depends on your investment profile and financial goals. One must evaluate their risk appetite before investing. The return that an investor can expect from his investments is therefore typically dependent on the level of risk that the investor is willing to assume and the investment horizon.
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