Now that we know what OFs are, let us look at the pros and cons of investing in these funds. OFs are high risk-return investment propositions as a volatile market environment, will always present opportunities that appear promising enough for generating high returns, but such high returns always come with high risks too. The decision to invest in a stock of a particular theme, sector or industry may lead to deterioration in the performance of the fund if the policies or regulations do not favour the sector or industry and the stock price moves against the expectations of the fund manager,
The OFs usually invest in 4-5 sectors or industries that the fund manager expects will perform better than the other sectors and the broader market. Needless to say, such concentrated portfolio carries higher risk than a portfolio that is well-diversified across sectors, themes, industries, market caps, etc.
Since the OFs have the flexibility to invest across market caps, be it large-cap, mid-cap, small-cap, micro-cap, etc. these funds can have a diversified portfolio if the fund manager decides to build one. However, the fund manager can also build a concentrated portfolio of large-cap or mid-cap or small-cap stocks if he decides to do so, in which case the advantage of diversification would be lost.
The OFs usually have a high turnover ratio as the fund manager is constantly on a look out for stocks that can add value in the short to medium term He may divest some of his stocks that have failed to provide expected returns or where the returns have been maximised, and in their place, add new stocks that have the potential to do well. In the process, he may end up constantly churning the portfolio often in an attempt to maximise the returns.
Considering the above factors, investors who have high risk appetite and expect high returns can consider investing in the Opportunities Funds.