Have you ever witnessed a particular sector in the Indian economy outclassing its peers regarding growth?
The good news is that you can capitalise on this accelerated growth with sectoral funds! You can find sectoral mutual funds amongst equity fund schemes.
It is a targeted equity scheme that parks your investments in companies belonging to your desired sector. For instance, if you feel that the IT sector displays solid signs of growth, you can chooseIT sector mutual funds and leverage the growth projects for increased profits.
Undoubtedly, sectoral funds are high risk, with increased volatility. However, they offer some significant advantages. Explore the concept in-depth as we discuss the benefits of investing in these equity schemes and how to get started.
Think of sectoral funds as standard equity schemes. Similar to how the Nifty 50 funds invest in the top 50 companies, the sectoral mutual fund schemes focus on small, mid and large-cap companies belonging to the same sector.
SEBI's mandate states that sectoral mutual funds have to invest at least 80% of total investor funds in the relevant sector. The collection of companies can vary, but most schemes choose businesses with solid fundamentals. As an investor, you must perform your due diligence before committing to a sector.
While the risks of sectoral funds are transparent, identifying developing sectors can boost your portfolio.
‘To invest or not to invest’ is a gripping dilemma, considering that high-risk options like sectoral mutual funds stand at the volatility threshold. But don’t decide without assessing the advantages of the sectoral schemes. Here are some notable benefits:
Let’s face it – no sector can enjoy extended periods of profitability and consistent growth. Every business is subject to a cyclic performance, where they perform well during specific quarters but take a fall during other months. Rely on extensive research and analysis to estimate the sectors that might arise in the upcoming months. You can use this information to invest in sectoral funds and acquire inflation-beating returns.
Whether you have existing investments in mutual funds or the stock market, chances are you might not have invested in more than a few companies in a specific sector. Avoiding putting your eggs in a single basket is a viable investment strategy. However, it comes at the cost of losing significant returns if all businesses of a particular sector achieve exponential growth.
Investing in sectoral funds is a reliable method to prevent this, provided you define and stick to a pre-decided risk appetite.
The best part about sectoral funds is that they invest in a diverse array of companies in a specific sector. So, even if some companies showcase below-par performance, others can balance it out to maintain or enhance the value of your portfolio. To minimise risk, your investment is divided amongst small, mid and large-cap companies.
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Cyclic sectors like automobiles, airlines, construction, hotels, restaurants, and semiconductors can make good investments.
Some of the sectoral mutual funds are: