There are different investing styles that fund managers adopt for different schemes. Depending on the investment strategy and investment mandate, the fund manager effectively looks for opportunity and invests the corpus of the scheme. Once such a mutual fund scheme is an opportunity fund that looks for growth opportunity and delivers potential returns. This article will cover opportunity fund in detail.
What is an Opportunity Fund?
Opportunity funds are open-ended mutual funds that use the pooled money of investors to purchase stocks of companies with high opportunity for growth. In other words, the fund manager is on a constant lookout for investment opportunity. These opportunity can be stock-specific, industry-specific, sector-specific, thematic, etc. Also, opportunity can arise due to changes in government regulations, policies, trade agreements etc. Furthermore, the investment mandate is very flexible and provides the fund manager leeway to move and shuffle the portfolio across different sectors, industries, themes and market capitalisation.
The primary objective of this fund is to maximise wealth creation and deliver potential returns to its investors. Since these funds invest in companies with high future growth, the portfolio keeps changing to match the pace of evolving growth rates.
For instance, if the auto and sugar industries are on a growth trajectory for this year, the fund manager will include these stocks in the portfolio. Similarly, next year if the banking and pharma industry is in a growth phase, the fund manager will include those company stocks.
Best Opportunities Funds to Invest in India 2023
|Fund Name||AUM in Crores||3Y Returns||SIP Minimum|
|Axis Growth Opportunities Fund||8459.5 Cr||18.9%||Rs. 1000|
|HDFC Mid Cap Opportunities Fund||35120 Cr||24.5%||Rs. 1000|
|SBI Technology Opportunities Fund||2726.8 Cr||30.4%||Rs. 1000|
|PGIM Midcap Opportunities Fund||7257 Cr||36.3%||Rs. 1000|
|Kotak Equity Opportunities Fund||11370 Cr||18.8%||Rs. 1000|
|DSP Equity Opportunities Fund||7268 Cr||16.7%||Rs. 1000|
|HDFC Housing Opportunities Fund||1233 Cr||15.1%||Rs. 1000|
|SBI Healthcare Opportunities Fund||1728 Cr||24%||Rs. 1000|
|UTI Value Opportunities Fund||7063 Cr||18.5%||Rs. 1000|
|Franklin US Opportunities Fund||2939 Cr||17.9%||Rs. 1000|
Features of an Opportunity Funds
The following are the features of opportunity fund –
Flexibility of Investment
opportunity funds do not rely only on market capitalisation bias. They invest across different market caps based on the opportunity and have a flexible investment approach. Therefore, an opportunity fund gives a sense of diversification to investors, but they should remain prudent and invest wisely.
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This fund tends to hold a concentrated portfolio for a period of time. They invest in stocks from 4-5 sectors that are expected to outperform the broader market in the short to medium term. Hence, the portfolio is constructed based on the fund manager’s views on macroeconomic and microeconomic changes like economic reforms, policies and regulations, restructuring, etc.
These funds are high-risk, high return investment propositions. In a highly volatile environment, they find investment opportunity. However, it is riskier as well. If the reforms or regulatory policies are not in favour of a particular sector, theme, or stock, it may deteriorate fund performance.
High Portfolio Turnover Ratio
The fund manager constantly looks for stocks that can add value in the short to medium term, making the turnover usually high. For instance, if the fund manager comes across stocks that are performing well, he/she will switch from investments which failed to pay off. This is a constant process, and if the fund manager can find the rights more than wrong, the opportunity fund can do well.
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Fund manager Experience
The fund manager’s role plays a vital role in the performance of these funds. They should have sound knowledge and understanding of how business works in each sector. Also, they should have a good judgement to make decisions based on how changes can directly or indirectly affect a specific investment. This skill develops over years of experience, and only a few may be successful. Sometimes, even ace fund managers can be proved wrong by the market.
How Does an Opportunity Fund Works?
There are many sectors or industries that pose an investment opportunity. The fund manager targets some of these themes to maximise wealth for its investors. For instance, they may pick one or more themes to maximise the fund performance like –
- Rural growth
- Economic revival
- New economy and many more
Moreover, the opportunity are not restricted to equity markets. The fund manager may also look for growth areas in the debt market if the fund investment mandate allows for such opportunity. Some opportunity in debt markets include –
- Long term bonds
- Short term bonds
- Government bonds
opportunity fund focuses on maximising the growth by investing in areas defined by the investment mandate. Therefore, investors must read the scheme related documents of mutual funds to understand the investment guidelines of the product.
Who Should Invest in an Opportunity Funds?
opportunity fund portfolio consists of stocks distributed across different market sectors with companies having different market capitalisation. This flexible structure allows investors to have broader market exposure.
The fund manager picks the sector or industry across market caps where growth opportunity are available. However, if the fund manager focuses only on a particular sector or market cap and builds a concentrated portfolio, the advantage of diversification may be lost. Therefore, investors must check the investment mandate before investing in these funds.
Moreover, these funds are a high-risk, high reward as they are highly uncertain. Markets are dynamic, and hence investors must stay invested for the long term to enjoy the benefits from these funds. Also, opportunity funds usually have a high turnover ratio as the fund manager is constantly looking for stocks that can add value. Therefore, investors must also check the expense ratio of these funds before investing in them.
Investors must understand their financial objective, risk tolerance levels and investment horizon that help them make informed decisions.