Table of contents
Introduction
If you’re into investing, you must be familiar with the concept that every fund is an investment opportunity. Doesn’t that imply that all funds are opportunity funds? Well, no!
An opportunity focuses primarily on companies and industries with significant growth expectations. These funds are overseen by experienced fund managers who allocate investments based on their expectation of growth potential in specific sectors or companies.
In this blog, we’ll talk about what is opportunity fund, how it works, and its key features.
What is an opportunity fund?
Opportunity funds utilise pooled funds from investors to invest in stocks from companies and industries that show significant growth potential. The fund manager actively looks for promising investment opportunities, whether they’re tied to specific stocks, industries or even sectors.
The fund’s main motto is to maximise wealth creation and offer potential returns to investors. With a sharp focus on companies poised for high future growth, the portfolio undergoes continuous adjustments to stay in line with evolving growth rates.
How does an opportunity fund work?
Opportunity funds are solely targeted to maximising gains for investors. The process is straightforward: as long as you have a demat and trading account, you can invest in these funds and potentially reap the benefits.
But how do these opportunity funds work? The fund managers of opportunity funds expertly scan the financial market for promising investment opportunities.
Depending on the nature and profitability of an opportunity, these funds may invest in large-cap, mid-cap, or small-cap companies. In fact, some funds even diversify by investing in a mix of all three categories.
Fund managers diversify investment in the equity and debt market to include stocks as well as long-term and short-term bonds, and even government securities, etc. to maximise gains.
There is also a vehicle called a qualified opportunity fund. What is qualified opportunity fund? These funds are designed to invest in qualified opportunity zones.
When you invest in an opportunity fund, you are likely to witness your portfolio evolve in tandem with fluctuating projected growth rates. For instance, if the automotive industry is experiencing an upswing, a portion of your portfolio will likely be allocated there. On the other hand, if big pharma is thriving the following year, your opportunity fund will shift its focus accordingly.
What this dynamic approach achieves is that it facilitates initial portfolio diversification and also ensures that your investments remain aligned with the volatile market conditions.
Features of opportunity funds
Opportunity funds have unique features that distinguish them from traditional investment vehicles. They are tailored to assist investors in achieving their long-term financial aims. Here are the top features of opportunity funds.
Flexible investment strategy
Deviating from the conventional large, mid, or small-cap focused funds, opportunity funds take a flexible approach across market caps. Rather than restricting themselves to a specific segment, opportunity funds identify and capitalise on opportunities wherever they emerge.
This adaptability inherent in these funds allows them to navigate the dynamic market more adeptly. As trends and conditions shift, fund managers adjust portfolios accordingly.
A concentrated portfolio
One feature of opportunity funds is that they have a proactive and concentrated approach to investing. This stems from a deep analysis of both macro and micro factors to pinpoint specific sectors with a potential to grow. Often, this growth is fuelled by regulatory changes, industry trends, or other impactful events.
Opportunity funds make focused attempts to capitalise on promising segments after careful consideration.
A higher portfolio turnover ratio
Opportunity funds have a high portfolio turnover ratio as fund managers actively hunt for stocks with medium to long-term value. They switch investments from underperformers to top performers.
This constant cycle, focusing on making more right moves than wrong ones, is key to success. However, this means the expenses are on the higher side too.
Portfolio optimization
Portfolio optimization involves a deep evaluation of holdings. Profits from successful positions are ploughed back into promising ventures while losses from underperformers are balanced out.
This constant cycle of reallocating and reinvesting is all about squeezing out the highest possible returns while keeping risks in check. Fund managers minimise potential downsides by continually directing capital to the most promising areas.
High risk for high returns
Opportunity funds come with higher risk because they focus on the short term and navigate through market ups and downs. Their aim? Leveraging opportunities for big gains. But let’s face it, predicting and timing market moves is tough.
Fund managers need to nail their forecasts and act fast on upcoming changes. Investors diving into this strategy need to have a little higher risk tolerance level.
Who should invest in opportunity funds?
Opportunity funds are suited for investors who aren’t afraid to ride the rollercoaster of risk. They need to be comfortable with fluctuations in the fund’s value over the years.
Investors should also have a patient mindset and should think of the medium to long term. Opportunity funds seek out emerging themes with growth potential but it might take a while for fund themes to fully materialise.
So, all in all, opportunity funds are suitable for investors who can handle higher-than-average risk and volatility and those who seek potentially greater returns in the long run.
Best Opportunities Funds to Invest in India 2024
| Fund Name | AUM in Crores | 3Y Returns |
| Axis Growth Opportunities Fund | 8459.5 Cr | 18.9% |
| HDFC Mid Cap Opportunities Fund | 35120 Cr | 24.5% |
| SBI Technology Opportunities Fund | 2726.8 Cr | 30.4% |
| PGIM Midcap Opportunities Fund | 7257 Cr | 36.3% |
| Kotak Equity Opportunities Fund | 11370 Cr | 18.8% |
| DSP Equity Opportunities Fund | 7268 Cr | 16.7% |
| HDFC Housing Opportunities Fund | 1233 Cr | 15.1% |
| SBI Healthcare Opportunities Fund | 1728 Cr | 24% |
| UTI Value Opportunities Fund | 7063 Cr | 18.5% |
| Franklin US Opportunities Fund | 2939 Cr | 17.9% |
Conclusion
Opportunity funds are a kind of mutual fund with a strategy. The fund managers actively seek potential high-growth investments compared to conventional funds. However, with greater possible returns comes higher risk. For investors with a higher risk tolerance looking to capitalise on emerging trends, opportunity funds provide a way to strive for sustainable and substantial economic growth.
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FAQs
Opportunity funds are those that invest in sectors that are likely to see a rally in the near future. They invest irrespective of market size in larger sectors with potential growth opportunities.
The performance of an opportunity fund depends largely on the experience and expertise of the fund manager. But even with sound knowledge and a deep understanding of the market, the results may not be as expected sometimes.
With opportunity bonds, fund managers are always on the lookout for the perfect exit timing so that they can invest in better-performing sectors. This active approach keeps portfolios dynamic.
Investors should be prepared to stay rooted for at least three to five years as upswings take time to realise. As always, patience proves to be the key to realising the full potential of these funds.
Opportunity funds are a great fit for investors who crave that extra return and are comfortable with short-term ups and downs.