DSP BlackRock (DSPBR) mutual fund has recently come out with a new fund offering (NFO) ? the DSPBR Focus 25 fund. The NFO period for this open-ended equity fund is April 23 to May 21 and thereafter, the fund will be available for sale and repurchase at NAV values. DSPBR Focus 25 is an equity scheme ? with focus on giving higher returns than diversified funds by maintaining a concentrated (smaller) portfolio of stocks. DSPBR equity schemes usually maintain a portfolio of 70-80 stocks. For instance, there are 80 stocks currently in the portfolio of DSPMR Tiger, 81 for DSPBR Equity, 75 for DSPBR Opportunities and 41 for DSPBR Top100. But for DSPBR Focus 25, it would 25 stocks.

In terms of the investment horizon, it plans to invest around 80-100% of its portfolio to top 200 companies by market capitalisation. This, in effect, makes it a largecap fund. It makes sense to keep a largecap focus for this fund since the fund manager is taking a higher bet on a single stock than otherwise. Higher liquidity ensures the fund manager can easily get in and out of any stock at short notice.

The fund house advances the argument of historical divergence of equity scheme returns as well as that of returns of sectoral indices and individual stocks to prove the point about opportunities in the market and how Focus 25 could benefit from it. While the argument is not flawed, the divergence of returns has been a given in Indian markets. And after all, aren?t all the ?active? fund managers supposed to pick the ?right? stocks within its benchmark indices to outperform the latter?

From the investment mandate, it is quite clear the fund is a high-risk taking one that could also reward the investor if it gets its portfolio strategy right. The fund has a mandate to cash calls of up to 35% of the portfolio. This again increases the risk profile of the fund.

Should an investor have this fund in the fund portfolio? It depends. First of all, DSPBR has a good track record of performance?particularly on the equity side. For instance, its three funds ? DSPBR Equity, DSPBR Top 100 and DSPBR small & midcap (Reg) are all five star funds?as per value research risk-adjusted return ratings. DSPBR Opportunities and DSPBR Tiger, though, have a lower rating of three stars.

But Apoorva Shah, who will be the fund manager for this fund, has a long track record of good performance. He also manages five-star funds DSPBR Equity and DSPBR Top 100.

Investors into this fund have to do a lot of soul-searching. For first-time investors, it would make sense to first buy a plain-vanilla diversified equity fund first and then venture into such specialised schemes. But if you are an existing equity fund investor, DSPBR Focus 25, at best, could be a way to diversify across investing styles. But then, do you have midcap & smallcap funds? Value and growth funds? Or opportunities and sector/ theme funds? The variety of equity schemes is only going to increase.

To that extent, you could keep on diversifying across asset classes. Of course, diversifying equity fund investments across fund houses makes sense, as it would then by managed by different fund managers. But, beyond that, where do you want to venture is a million-dollar question of personal preference. Also, there is no clear record to prove if concentrated portfolio stra-tegies could lead to higher returns for investors. The two other funds, Sundaram Select Focus and Kotak 30 with similar fund mandate, have an average ratio of three stars. As Warren Buffett said, investment sometimes are best kept simple.