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Focused equity schemes are actually less risky: Mayur Patel of IIFL AMC

Focused equity schemes are actually less risky: Mayur Patel of IIFL AMC

 

It is a commonly-held notion that focused equity mutual fund schemes are riskier than the diversified mutual funds. In fact, many mutual fund advisors highlight this aspect to their clients all the time and ask them to stick to mutual fund schemes with diversified portfolios. However, Mayur Patel, Fund Manager, IIFL Focused Equity Fund, counters this claim. “Majority of time, the standard deviations of diversified multi cap funds is more than the focused multi cap funds. Which means the risk is lower in focused funds,” said Mayur Patel at the ET Wealth Investment Workshop held in Ahmedabad on December 13.

A low standard deviation indicates lower volatility and risk associated with the scheme.

“Rather than focusing on returns, investors should focus on return per unit of risk. Focus on risk ratios. How much risk are you taking for how much return is the point,” Patel told the participants at the workshop.

Mayur Patel said that diversification is indeed necessary, but a good mix of diversification and high–conviction portfolio is good way to play for a long term. “Benefits of diversification and risk reduction decreases beyond 20-25 stocks,” Patel said. He added that the benefit of diversification is not achieved by increasing the number of stocks in the portfolio

Mayur Patel told the participants of ET Wealth Investment Workshop, that he as a fund manager avoids value traps. “PSU Banks, telecom, utilities and oil & gas are examples of value traps. We tend to avoid these segments,” Patel said.