A diversified portfolio helps investors tackle investment risks and ensure consistent medium to long-term returns. Here, investors can choose to diversify their portfolios by investing in asset classes like equity, debt, and gold. On the other hand, they can opt for investments in diverse sectors of the economy.
Wondering what the latter types of investment instruments are called? These are known as sectoral mutual funds in India. Read on to learn about the sector or sectoral funds in detail!
Sector or sectoral funds are sector-specific funds that focus on investing in stocks of companies belonging to one particular sector.
These are equity funds that mostly invest in stocks and equity segments of a particular segment or industry of the economy.
As per the Securities and Exchange Board of India (SEBI) guidelines, sectoral funds invest a minimum of 65% of their assets in a specific sector.
Now that individuals know the meaning of sectoral funds, let’s learn about other related details.
There are no fixed types of sectoral funds. However, there can be different sector-wise mutual funds depending on the available sectors or industries.
Popular sectors dominating the Indian economy include the following:
Equity mutual funds invest money in stocks of companies. Sector-wise mutual funds invest 80% of their money in stocks of companies belonging to the same sector or industry.
A sector includes similar kinds of businesses under its umbrella that provide similar types of products. For instance, take the pharma sector, which has companies such as Cipla and Biocon operating in this sector. Therefore, a sectoral fund investing in the pharma sector will have a portfolio of businesses belonging to this specific sector.
However, this particular fund will not only focus on investing in medicines but also in different areas like hospitals, diagnostics and many other related operations.
The essential features of sectoral mutual funds in India are discussed below:
Here is a list of benefits of investing in sectoral funds or sector fund:
Refer to the table mentioned below to learn about the 5 years returns from sectoral funds in India.
|
Name of the Fund |
5-Year Returns |
|
ICICI Prudential Technology Fund - Direct Plan-Growth |
26.23% |
|
Aditya Birla Sun Life Digital India Fund Growth |
23.85% |
|
Tata Digital India Fund Regular Growth |
24.71% |
|
ICICI Prudential Technology Fund |
25.03% |
|
Aditya Birla Sun Life Digital India Fund - Growth-Direct Plan |
25.17% |
|
SBI Technology Opportunities Fund - Direct Plan-Growth |
23.92% |
|
SBI Technology Opportunities Fund |
22.55% |
|
Franklin India Technology Fund Growth |
17.32% |
Investing in sectoral funds has the following risks:
Investors must assess the following factors before investing in sectoral funds:
On the other hand, if investors hold a sectoral fund for less than 1 year, it will be classified as Long-Term Capital Gains (LTCG) tax.
Remember, if investors gain up to ₹ 1 lakh, they do not have to pay any tax. For gains of more than ₹ 1 lakh, investors have to pay 10% tax on them.
Investors with a high-risk appetite and a minimum investment horizon of 3-5 years can invest in sectoral funds.
Investors can invest sectoral funds offline via a broker (through a regular plan). Individuals willing to invest independently can do so by visiting the nearest AMC branch. Otherwise, they can invest via online investment platforms.
Reading the above information is not enough. Carefully analyse specific sectors and their trends in particular market conditions before investing in sectoral funds in India.
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Disclaimer: This information is added only for informative purposes and collected from different sources across the Internet. Digit Insurance is not promoting or recommending anything here. Please verify the information before making any decisions.
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