How return comparisons can mislead investors: Focused mutual funds hold just 30 stocks but benchmark against Nifty 500 — SkimNews
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- Focused mutual funds may hold no more than 30 stocks while keeping at least 65% of assets in equities, and their holdings can span large-, mid- and small-cap companies.
- AMFI assigns focused funds Tier 1 benchmarks under SEBI’s uniform framework—generally the Nifty 500 TRI or BSE 500 TRI—giving the category a common 500-company yardstick.
- SBI Focused Fund delivered a 4.02% one-year return as of October 22, 2026, while its BSE 500 TRI benchmark fell 7.95%.
- HDFC Focused Fund fell 6.56% over one year while the Nifty 500 TRI declined 7.64%.
- Jyoti Bhandari Chandra and InvestorAi CEO Bruce Keith said broad benchmarks fit focused funds’ mandate because they provide a category-wide yardstick and represent the universe from which managers select stocks.
- Manish P. Hingar said there is no perfect benchmark: the Nifty 50 is too narrow for funds owning mid- and small-caps, while a fully customized benchmark removes the ability to compare funds.
- Harsha Vardhana VM proposed pairing Tier 1 with a composite based on a fund’s historical cap mix—70% Nifty 100 TRI and 30% Nifty Midcap 150 TRI in her example—while Jyoti Bhandari Chandra noted hybrid funds already use allocation-based composites.
Why it matters: For investors in focused schemes holding up to 30 stocks, a second benchmark matching the fund’s large-, mid- or small-cap mix—for example, 70% Nifty 100 TRI and 30% Nifty Midcap 150 TRI—separates manager execution from the broad market’s direction, turning one Tier 1 return into a fee-versus-skill check.
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