Does It Make Sense To Invest In Business Cycle Funds?

Business cycle funds monitor the economic cycle and invest accordingly. Many of you may find this concept fascinating, but is it worthwhile? This article discusses what business cycle funds are, how they work, and if investing in them is really a good idea

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Mutual funds are one such investment vehicle that provides a large variety of investment themes suited for both retail and high net-worth individuals (HNI). Of course, having so many alternatives might be confusing for investors. As a result, we always work towards making things as simple as possible for our readers and investors, particularly those having limited investment experience. As previously said, mutual funds provide a wide range of investing themes. Business cycle funds is one such theme. Despite the fact that there are just five schemes in total excluding the recently launched Kotak Business Cycle Fund, they have amassed assets under management (AUM) of ₹9,938.8 crore as of August 2022.

However, most investors are uninformed of how it works and if it is prudent to invest in them. In this post, we will explain what business cycle funds are, how they function, and whether or not it is a good idea to invest in them.

Defining Business Cycle Funds

Business cycle funds are defined as those that recognise economic patterns and invest in sectors and companies at various phases of the business cycle. During economic expansion, business cycle funds would most likely invest in stocks from cyclical sectors such as mid-cap and small-cap businesses, as well as in growth-oriented sectors. In the phase of slowdown, however, they migrate to defensive businesses such as larger and more reliable companies. Unlike most other funds, which use a bottom-up investment technique, these funds use a top-down method. This means they pick sectors and companies within them first, based on macroeconomic situations and thematic patterns.