Sectoral Mutual Funds: Meaning, Objectives, Risk, Best Mutual Funds
Sectoral mutual funds or mutual fund schemes that invest in specific sectors or themes are recommended only to highly informed investors. A Sector Fund, as the name implies, is a fund which primarily invests in a single sector/industry, concentrating on entities which operate under the ambit of this particular sector. These schemes are notorious for going through highly-rewarding phases, followed by prolonged rough patches. Now you can scroll down below and check more details for “Sectoral Mutual Funds: Meaning, Objectives, Risk”
Meaning of Sectoral Mutual Funds
Sectoral Mutual Funds are the ones where the fund amount will be invested in the companies of specific industries depends on the sector it belongs to. To say in one word these are sector specific investments where the amount procured through issue of units will be invested in a specific industry.
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Popular sectors for investment
For example there are numerous sectors in the industry as
India has become a hub for industries since the economic revolution in the 90’s, with a number of major financial conglomerates setting up businesses in the country. Some of the popular sectors opted by fund managers and mutual fund companies are listed below.
- Tele communications
- Information technology
If the amount procured by issuing mutual funds units is used solely for investing in the enterprise belonging to FMCG then it can be said as FMCG sector fund.
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Objective of the sectoral Funds:
Main objective of these funds is to generate higher returns to the investors by investing in those sectors which are performing well. If the performance of banking sector in a country is very well then the demand for banking sectoral mutual funds will increase and vice versa.
Every result is extreme:
Since the funds are invested in the companies belonging to a specific industry the chances and the volume of gain or loss id high. For example if the IT sector is on bhoom then the gain that the investors of these It sectoral funds will be benefited much. On the other side if there is continuous lacking in the performance of an industry then those sectoral funds will results in heavy losses to the investors. So these funds are extremely volatile compared to the diversified funds in the market.
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These funds are sector specific, so it is very difficult to predict which sector is going to perform well in the coming future. They come with extreme results either gain or loss. So these funds are suitable for those who are ready to bear the losses.
Requires more experience & research:
For choosing a sectors mutual fund it requires to have a good knowledge about the performance of various industries. And the ability to assess the impact of an incident on various sector is also very important. Investing in right sector at right time is very important to avoid losses. More over if you incur losses they cannot be compensated by the same fund except in the long run. So it is required to research well before investing any sector funds.
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Following are the best performing sectoral mutual funds in recent times:
- Banking – SBI Banking & Financial services fund
- Energy & power – UTI Energy fund
- FMCG – SBI fmcg fund
- Infrastructure – SBI Infrastructure fund
- Media and entertainment – Reliance media & entertainment fund
- Pharma & Health care – SBI Pharma fund
- Service Sector – ICICI prudential exports and other services fund
- IT – SBI IT fund
If you have skill and expertise to predict the future of different sectors in the industry and ready to bear the high risk associated with these funds then it is better to invest in these funds. Otherwise, the beginners are not advisable to start with these except in case of backed by strong financial advisers.
Mutual funds are subject to market risks. The information provided above is my personal opinion. This cannot be taken as endorsement of any fund or any financial decision. Investors are advised to verify all the scheme related details before choosing any fund.