Mutual funds: What are sectoral funds and why should you invest in it? | Mint

As a new investor of mutual fund, the fund in which one has to invest is one of the most common dilemmas one faces. Investors are usually recommended to choose an index subject fund that hedge the risk by investing in stocks and sectors. Some common index subject funds are Nifty50 Fund, Nifty100 Fund, Sensex 500 Fund and Nifty250 Small Cap Fund, and so on. However, what should one do when one is committed to a specific sector or theme – say, among other things, innovation, consumption, manufacturing, technology. Invest in a Sectoral/Thematic Fund? These funds are intended for those committed to a specific sector or theme. What are sectoral/thematic funds? According to the Sebi’s categorization of mutual fund schemes, sectoral/thematic funds are supposed to invest at least 80 percent of their total assets in equity and stock-related instruments of a specific sector or theme. Sectoral Funds: These funds invest in a particular sector of the economy such as infrastructure, banking, technology or pharmaceutical products. Thematic funds: These funds choose shares of businesses in industries that belong to a specific theme, for example infrastructure, service industries, PSU or MNCs. There are a total of 215 schemes in this combined category with total assets amounting to £ 4.92 Lakh Crore, the highest among all categories for equity funds, followed by Flexi Cap funds (which has total assets of £ 4,71 Lakh Crore). Some of the top performing sectoral/thematic funds that have rendered high returns over the past five years include Aditya Birla Sun Life Infrastructure Fund (31.97 percent), Aditya Birla Sun Life PSU Equity Fund (32.87 percent), Bandhan Infrastructure Fund (35.57 percent) and icicion prudenticial Technology Fund. Why should one invest in these mutual funds? There can be numerous reasons to invest in these funds: A. If an investor is too committed to a specific sector or theme like a technician wants to invest in a technology fund. B. When the chances of a sector grow are very high. For example, in response to the government investing big money in infrastructure projects, investors have made a line line for funds focusing on this sector. C. When an investor wants to make a focused investment, which is broader than a stock but not as diversified as the index. Meanwhile, it is important to note that sectoral/thematic funds focus on only one sector/theme and therefore they limit diversification and are therefore riskier. “Usually, investors should only assign 15-20 percent of the portfolio to all sectoral/thematic funds,” says Sridharan S, a Sebi-registered investment adviser and founder of Wealth Ladder Direct. Visit here for all updates for personal finance