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Focus on Diversification

Investments in funds like DSP BlackRock Focus 25 don’t give you the advantage of diversification…

I invested in DSPBR Focus 25 during its NFO. The fund has underperformed since then. I would like to know if I should redeem my investment or stay put expecting an improvement in its performance considering the pedigree of the fund house.
- Murali Subramaniam

The advantage of investing in an equity mutual fund is the diversification it offers and the professional management that comes with it. DSPBR Focus 25 is a multi-cap fund, which was launched in May 2010 and it invests in equity and equity-related securities including equity derivatives in up to 25 companies. This investment narrowness reduces diversification and does away with one of the biggest advantages of investing in equity mutual funds. Moreover, funds in the multi-cap category are normally risky compared to a large-cap or a large- and mid-cap fund category. This fund with its investment focus on 25 stocks further narrows the investment selection; making investments in it extremely risky. Further, the markets have been in a bear phase since the launch of this fund, which has further added to the fund's poor performance. If your investment time frame is of 3-5 years or more and you can stomach the risk, hold on to your investment; else exit this investment and look at investing in broad diversified equity funds.

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