When done right, focus can outperform—but only if you’re prepared for the ride.

In mutual fund investing, diversification is the golden rule. But there’s another style of investing that takes a different path: concentration.

Concentrated equity funds break away from the pack by holding a limited number of high-conviction stocks—typically between 20 and 30. The goal? Maximize returns by focusing on the best ideas, rather than spreading bets too thin.

But this comes with higher risk and requires a solid understanding of the fund’s philosophy, your own risk appetite, and where it fits in your overall portfolio.

Let’s explore what concentrated equity funds are, how they work, and who they’re truly meant for.

1. What Are Concentrated Equity Funds?

Concentrated equity funds are mutual funds that intentionally limit the number of stocks in their portfolio. Unlike diversified funds that may hold 50–100 stocks, these funds often hold:

• 15–30 carefully selected companies

• Across market caps and sectors, or sometimes focused on specific themes

SEBI regulations allow mutual funds to manage focused equity funds under a special category, which:

• Must hold no more than 30 stocks

• Must invest at least 65% in equity

• Can be multi-cap or skewed toward specific sectors

2. Why Fund Managers Use a Concentrated Strategy

✅ High Conviction

Managers back only their most researched and promising ideas—no fillers.

✅ Potential for Outperformance (Alpha)

When the chosen stocks perform well, a concentrated portfolio can significantly beat the benchmark.

✅ Greater Accountability

With fewer holdings, performance is closely tied to stock-picking skill—not just asset allocation.

✅ Focused Risk and Reward

Each stock has a larger weight, which can amplify returns—but also losses.

3. Concentrated vs Diversified Funds

4. When Do Concentrated Equity Funds Work Best?

📈 In Bull Markets

When the broader market is rising, focused bets on outperformers can generate outsized returns.

🧠 With Skilled Fund Managers

The success of these funds hinges on research, timing, and judgment.

📊 As a Satellite Allocation

They’re best used as a complement to your core portfolio—not the core itself.

5. Ideal Investor Profile

✅ Comfortable with volatility and short-term underperformance

✅ Has a long-term horizon (5–7 years+)

✅ Already holds a diversified core portfolio

✅ Wants to add alpha potential through concentrated exposure

For example, if you’ve built a strong base of index funds and flexi-cap funds, adding a concentrated fund can give you that performance kicker—as long as you understand the risks.

6. What to Watch Before You Invest

🔍 Fund Manager Track Record

Skill and consistency matter more here than in most other categories.

🔍 Stock Selection Style

Growth? Value? Sector-tilted? Understand the philosophy.

🔍 Overlap with Existing Funds

You don’t want concentrated funds holding the same top 10 stocks as your other funds.

🔍 Volatility in Past Drawdowns

Check how the fund behaved in 2020 (COVID crash), 2022 (rate hikes), etc.

7. Risk Management Tips

• 🧱 Limit exposure to 10–15% of your overall portfolio

• 🔄 Review performance annually, not monthly

• ⚖️ Use alongside low-volatility funds to keep your risk balanced

• 🛑 Avoid during life stages when capital protection matters more than growth (e.g., pre-retirement)

TL;DR — Too Long; Didn’t Read

• Concentrated equity funds invest in 15–30 high-conviction stocks for potential outperformance

• Offer higher returns—but also higher volatility and risk

• Best used as a satellite holding, not a core component

• Ideal for long-term investors with aggressive growth goals and portfolio stability elsewhere

• Manager skill is critical—do your homework before you commit

📩 Curious if a concentrated fund fits into your current portfolio? Let’s review your allocations and explore whether a high-conviction strategy can amplify your returns without derailing your long-term plan.