Focused Funds Beat Nifty 500 With Just 30 Stocks — SkimNews
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- Focused mutual funds invest in a maximum of 30 stocks with at least 65% in equities, yet are benchmarked against the Nifty 500 TRI or BSE 500 TRI, which represent 500 companies.
- SBI Focused Fund, the largest in its category by AUM, delivered a 1-year return of 4.02% as of October 22, 2026, while its benchmark, the BSE 500 TRI, fell 7.95%.
- HDFC Focused Fund declined 6.56% over the same period, outperforming the Nifty 500 TRI, which fell 7.64%, highlighting how concentrated funds can beat broad-market indices despite mismatched benchmarks.
- Jyoti Bhandari Chandra said the Nifty 500 is used because focused funds can invest across market caps and styles, making a broad index the only uniform benchmark under SEBI’s framework.
- Harsha Vardhana VM argued that narrower benchmarks could distort performance views, but also suggested a composite benchmark reflecting a fund’s actual cap mix—like 70% Nifty 100 TRI and 30% Nifty Midcap 150 TRI—would be more accurate.
- Manish P. Hingar noted that while the Nifty 50 is too narrow for funds holding mid- and small-caps, fully custom benchmarks risk making cross-fund comparisons impossible.
Why it matters: Investors may misjudge focused fund performance by relying solely on broad benchmarks like the Nifty 500, which don’t reflect the concentrated, active nature of these portfolios. A mismatched comparison can inflate perceived outperformance, leading to poor capital allocation decisions when fees and strategy transparency are not weighed against more relevant indices.
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