Name of new fund offer (NFO)
DSP BlackRock Focus 25 fund
What is this about?
Typically, mutual fund (MF) schemes diversify their portfolios across sectors and scrips so that a fall in one or a few holdings doesn’t drag the portfolio down. But that doesn’t mean that a less diversified portfolio doesn’t work if managed well. Here’s where DSP BlackRock aims to make a difference. The new fund will invest in 20-25 stocks at all times against 50-70 stocks that other diversified schemes, typically, hold.
Holding a tight portfolio helps if the fund manager can consistently make correct calls and spot opportunities in time. A rise in a few stocks is enough to help the fund make handsome gains. The NFO will also invest at least 80% of its portfolio in scrips of the BSE 200 index. Sticking to scrips of BSE 200 will ensure that the quality of the fund’s portfolio is high.
Although numerous studies point out that diversification beyond a point doesn’t make sense—some equity schemes hold 70-90 stocks—there is little or no evidence that a fund’s success depends on the number of stocks it holds. It depends more on the fund manager’s skills and how well he spots opportunities in the market. On account of limiting its diversification, the NFO will be more volatile than typical diversified funds in volatile or falling markets.
MONEY MATTERS TAKE
DSP BlackRock is one of the best equity fund houses and offers a wide bouquet of well-performing equity funds that have a track record. Apart from a comparatively concentrated portfolio, the NFO offers nothing new. Go for it if you wish to take on the added risk of a concentrated portfolio.