Sectoral Mutual Fund: A Fund for Experienced Investor…!!
Every investor has a unique investing style. That depends upon its experience, present scenario, and investing goals. Some invest for the long term, while some invest in the short term, some invest in equity and some invest in debt. But an investor also invests according to the sectors too. These funds are called as Sectoral Mutual fund.
Sectoral Mutual Funds are the scheme that only invests in the specific themes of industry or the economy. It is the type of mutual fund that invests in securities of specific sectors of the economy, such as banking, telecom, FMCG, Pharmaceutical, infrastructure, and other sectors. It does not fall into any category of large–cap or mid-cap. But it is generally divided into eight categories such as:
- Natural Resource Funds: These are mainly the fund, which invests in energy resources such as natural gas and oil.
- Real Estate Funds: These funds primarily invest in real estate funds. It provides the investor an opportunity for small investors to gain from the property market without the need to purchase it.
- Financial Funds: These funds mainly invest in the commercial and financial industry holding. Holding will involves a share of the investment firm, insurance firm, and banking business.
- Pharma or Healthcare Fund: These are the funds, which mainly invest in companies related to medical fields. Much of their stocks focus on biotechnology and the companies making pioneering improvements in the industry.
The prime objective of these funds is to generate capital appreciation by investing in equity and equity–related securities, which will rise in the future due to strong consumer demand. These funds are recommended only to highly informed investors. Historically, it has shown high rewarding phases followed by prolonged rough patches. Let’s look at some of the advantages of investing in sectoral mutual funds:
- Sectoral funds provide an opportunity for investors to take profit from trends.
- If the investor chooses correctly, then he/she will get a subsequent increase in value over a period.
- They also provide a significant diversion within a given industry, compared to the individual stocks.
- In the long term, the sectoral mutual fund outperforms the benchmark index.
But before investing in these funds, let’s look at the reason for investing in these mutual funds:
- If you are an early or new investor, then keep avoiding investing in these funds without any expert advice.
- You need to have clear financial goals for investing in the sectoral mutual fund. One cannot invest by just looking past year’s performance to get the quick benefits.
- Sectoral funds should be chosen only as an investment instrument if the investor is comfortable with the growth potential in a sector.
- You should invest in the sectoral fund only for a relatively short time period of three to five years. These funds are cyclical and are likely to do better under certain market conditions, which favor the sector.
So, before investing in these funds, an investor should also look upon top–performing sectoral mutual fund, which has outperformed the benchmark in a 5-year time period, according to the economic times:
- L&T Infrastructure Fund
- ICICI Prudential Banking and Financial Services.
- Invesco India Infrastructure Fund
- Reliance Diver Power sector fund
- SBI FMCG FUND Reg
- Kotak Infra and Eco reform Fund
But a naive investor should avoid putting large amounts of money directly into the sectoral fund. On the other hand, the option of SIP will better serve the purpose. As it is one of the highly riskier and volatile stocks.
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.