Focused mutual funds have demonstrated slower growth compared to other equity categories despite the broader mutual fund boom. According to data from the Association of Mutual Funds in India (Amfi), assets under management (AUM) in the focused funds category grew 69% over the three years ended August 2026 to ₹1.88 lakh crore. This growth rate trails every other equity fund category except equity-linked savings schemes (ELSS), which have lost appeal as tax-saving instruments following the introduction of the new tax regime. The category's limited appeal stems from its concentrated portfolio structure, which allows fund managers to hold a maximum of 30 stocks across market capitalisations.
The category faces significant structural challenges that limit its appeal to investors. As reported by The Financial Express, mutual fund categorisation rules allow an asset management company (AMC) to offer only one focused fund per AMC, limiting the category's shelf space compared with sectoral and thematic schemes. Aditya Agarwal, co-founder of Wealthy.in, explained that focused funds compete with flexi-cap schemes, which offer similar flexibility to invest across market capitalisations without restricting to a narrow portfolio. This makes it harder for advisors to justify the additional concentration risk of focused funds unless there is a compelling high-conviction investment case.
Focused funds are designed for investors seeking concentrated, high-conviction satellite allocations rather than core portfolio holdings. According to Gajendra Kothari, MD and CEO of Etica Wealth, concentrated portfolios can make performance more volatile, particularly during market downturns, making focused funds a tougher sell for distributors and advisors catering to retail investors. For fund houses, the category presents an unusual challenge as a focused fund grows in size, the strategy becomes harder to execute due to liquidity constraints in building sizeable positions in mid- and small-cap stocks.
Despite constraints, experts anticipate focused funds will maintain their niche position in the market. Agarwal expects the category to grow steadily rather than break into the mainstream, as investor sophistication rises and advisors become more comfortable positioning concentration as a feature rather than a risk. Kothari similarly expects focused funds to remain a niche category, with smaller schemes potentially meriting consideration for sophisticated investors with high risk appetite seeking to add a concentrated strategy to an already diversified portfolio. The 30-stock ceiling compounds execution challenges as larger funds risk becoming tilted towards large-cap stocks to manage liquidity constraints.
