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All You Need to Know About Investing in Sectoral Mutual Funds​

As an investor, if you have been observing the growth in a particular sector, it is likely that you may want to benefit from it and invest in sectors of your choice, such as telecommunication, pharmaceuticals, etc. You can select specific sectors to build your investment portfolio. This is where sectoral mutual funds come into the picture. Investing in these funds is a way to diversify your portfolio. Let’s start with the basics behind the top-performing mutual funds in specific sectors of our country.

What are Sectoral Mutual Funds?

These are equity-based mutual fund schemes that invest in specific sectors, like energy, utilities, infrastructure, etc. These mutual funds in India can invest in stocks of companies across market capitalisations. With these funds, you get the opportunity to invest money in the high potential stock of a particular sector.

Here are a few crucial things you must know about sector mutual funds in India:

● Since sectoral funds limit the investment into a specific sector, they also make your portfolio vulnerable to the dynamics of that sector
● You can diversify the investments in these funds by targeting different capitalisations within the chosen industry or sector
● Sectoral funds are broadly classified into utility funds, real estate funds, technology funds, financial funds, healthcare funds, and precious metal funds
● Many sectoral mutual funds in India also focus more on the sub-sectors within a particular industry

What to Consider Before Investing in Sectoral Funds?

● Limit Sectoral Exposure to Your Portfolio

As an investor, it is important for you to maintain a diversified portfolio of regular mutual funds in India before you turn towards sectoral funds. The strength of an existing balanced portfolio can help you absorb the risks related to investing in a particular sector through some of the top-performing mutual funds.

In quantifiable terms, you can choose to limit the exposure to sectoral funds to around 5-10% of the total value of your investment portfolio.

● Research Well About a Particular Sector First

If you wish to invest in sectoral funds, you are likely willing to make the most of the opportunities in a specific sector. But before you make any investment decisions, it is advisable that you gain adequate knowledge of the chosen sector to understand the factors that influence it. For example, the rate of technological advancements may disrupt the technology sector faster.

Similarly, you may want to know about the cyclic performance of sectoral mutual funds in India and how to identify the right exit timing.

● Assess Opportunities for the Time Ahead

You may also look for avenues for future opportunities in the chosen sector. Such assessments may help you define your investment horizon as well as your exit timings.

Wrapping up

Sectoral mutual funds in India can be a good addition to your portfolio, provided you invest in them with an informed approach and not in a hurried manner. You can also align these investments to achieve specific financial goals in life.

The information herein is meant only for general reading purposes and the views being expressed only constitute opinions and therefore cannot be considered as guidelines, recommendations or as a professional guide for the readers. The document has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. The sponsor, the Investment Manager, the Trustee or any of their directors, employees, associates or representatives (“entities & their associates”) do not assume any responsibility for, or warrant the accuracy, completeness, adequacy and reliability of such information. Recipients of this information are advised to rely on their own analysis, interpretations & investigations. Readers are also advised to seek independent professional advice in order to arrive at an informed investment decision. Entities & their affiliates including persons involved in the preparation or issuance of this material shall not be liable in any way for any direct, indirect, special, incidental, consequential, punitive or exemplary damages, including on account of lost profits arising from the information contained in this material. Recipient alone shall be fully responsible for any decision taken on the basis of this document.

Mutual Fund Investments are subject to market risks, read all the scheme related documents carefully.

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