Widely read:
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Focused funds and flexi-cap funds are two sides of the same coin. They are different but closely related. Closely related because they both are allowed to invest in companies of all shapes and sizes and different because focused funds concentrate on no more than 30 stocks, while flexi-cap funds have no such restrictions.
Performance: Focused funds vs Flexi-cap funds
Given their striking resemblance, it's not surprising that there's hardly any difference between them on the performance front, with focused funds holding a teeny-weeny advantage of up to 0.3 per cent in the last five years (daily rolling returns from November 2019-2024).
Risk-adjusted performance
However, when we dug deeper and looked at the risk-adjusted performance of the two fund types, our analysis presented a different picture. For those unaware, when evaluating performance, it's not just about high returns but also how much risk is taken to achieve them.
So, we looked at 26 focused funds and flexi-cap funds belonging to the same fund house. We compared their performance and looked at the standard deviation, a tool that measures the ups and downs of a fund's performance.
Here's what we found:
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Among the eight focused and flexi-cap funds over 10 years old, only two focused funds beat their in-house rivals on the basis of five-year rolling returns and a lower standard deviation. (The lower the standard deviation, the better it is, as it implies a fund took less risks to generate returns).
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Among the two that are six to seven years old, neither focused fund could outperform the in-house flexi-cap funds based on three-year rolling returns and a lower standard deviation.
- Among the 16 less than six years old, only three focused funds fared better based on the performance from their inception to November 12, 2024, and a lower standard deviation.
Focused vs flexi face-off
Based on risk-return performance, flexi-cap funds perform better than their in-house focused fund counterparts
| Age of funds (years) | No. of funds | Number of times focused funds beat flexi-cap funds and had lower SD |
|---|---|---|
| Ten or more | 8 focused + 8 flexi-cap funds | 2 |
| Six to seven | 2 focused + 2 flexi-cap funds | 0 |
| Less than six ^ | 16 focused + 16 flexi-cap funds | 3 |
| Note: ^The standard deviation (SD) is calculated over a year. For others, a five-year SD is used, up to November 12, 2024. | ||
The last word
Focused funds have shown the potential to deliver marginally higher returns but have to take higher risks to do so generally. One of the reasons may be their concentrated portfolio - and, therefore, heavy reliance - on just 30 stocks or less.
On the other hand, flexi-cap funds, with their broader portfolio, offer more stability.
So, for those who value smoother rides and lower volatility, flexi-cap funds emerge as a dependable choice.
Also read: Flexi-cap fund vs focused fund: What's best for your investment strategy?
Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.
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