Investment Guide for Sectoral Funds

For investors who wish to concentrate on a particular business or industry, sectoral mutual funds are a great choice. However, one should be conscious of the potential dangers and restrictions when investing in sector mutual funds. Vardan Pandhare lays down some important guidelines that you could follow

- Vardan Pandhare

You would have recently noticed a staggering increase in the information technology (IT) industry. And now you are wondering whether there’s a way to benefit from this growth trend without actually having any core knowledge of this sector. Yes, definitely! You can invest in stocks of successful IT firms by investing in sector funds dedicated to information technology companies. Sector or sectoral mutual funds are nothing but equity-linked investments in a particular economic sector or industry.

A few examples of this industry are IT, FMCG, steel and coal. These funds make investments in businesses within particular industries with a range of market capitalisations and security classes. So, coming to the moot question, do you find the prospect of investing in sector-specific funds exciting? If so, then take into account the following factors before diversifying your portfolio by including sector-specific mutual funds.

Understanding Sectoral Mutual Funds

According to SEBI regulations, sector mutual funds must invest a minimum of 80 per cent of their assets in a certain sector. They concentrate on a certain industry, such as banking, healthcare, real estate or energy. A banking fund, for instance, solely invests in the equities of banks. Investors can invest in industries with a strong potential for growth through sector mutual funds. These mutual funds offer appealing returns, but typically only when investing at the right time. Investment in sector-specific funds must therefore be done at the right time. Also, the fund’s departure becomes significant.