Review of Nippon Focused Equity Fund - Direct-Growth

Basic Details of the Fund:

Nippon Focused Equity Fund (NFEF) has an AUM of Rs. 5,990 Cr. Mr. Vinay Sharma and Mr. Prateek Poddar are the managers of the fund. S&P BSE 500 TRI is the benchmark of NFEF. The Expense ratio of the NFEF Direct Fund is high at 1.44%, and the current NAV of the fund is INR. 86.2611. The exit load of the fund is 1% if withdrawn more than 10% of the portfolio value before one year, and after 1 year, the exit load is Nil.

Minimum Investment Details:

The Minimum initial lump sum amount to be invested in the fund is Rs.5,000/. The minimum additional purchase amount is Rs. 1,000/-. The minimum SIP Amount is Rs.100/-

About Focused Funds:

A Focused Fund is a portfolio of a limited number of stocks, mostly ranging between 20 to 30. The Focused funds offer an opportunity for a retail investor to invest in a concentrated yet diversified portfolio managed by professional fund managers to generate higher ‘Alpha.’

Market caps, Stocks, and Sectors:

Moderate stocks concentration; High Turnover Ratio; Decent exposure to mid-cap stocks

The current number of stocks in the NFEF is 30. The fund has a turnover ratio of 76%, indicating a high churning in the portfolio.

The top 5 stocks in the portfolio of NFEF constitute 32% of the total portfolio holdings, and the top 10 stocks allocation in the portfolio is about 51%. The remaining 49% allocation is spread across the rest of the 20 stocks in the portfolio.

The moderate asset allocation to the top 10 constituents of the portfolio leads to less dependency on the performance of top stocks for the fund to deliver decent returns.

Exposure to mid & small-cap stocks in the portfolio of 31% allows the fund to capture a good quantum of returns during the uptrends of the markets. However, increased volatility is also expected due to the same.

Stocks & Sectors

The top 10 Stocks and sectors are as follows:

Fund Performance & Risk Profile:

Higher Volatility than the Index and Satisfactory Risk-Return Ratios:

As shown above, the fund’s 3-year returns are good at 21.97%, while the Index delivered 17.96% for the same period. We expect the fund will continue the consistency in providing returns to its investors.

Though the returns are good in the fund, the high standard deviation of 27.07% led the Sharpe ratio lower, and currently, the Sharpe ratio of the fund is similar to the levels of the benchmark.

Recommendation:

We recommend equity mutual fund investors accumulate the fund units with a perspective of 3 to 5 years investment horizon.

ATS believes a client should be well informed and educated 360 degrees on the aspects of investments.

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