Spread your risks across sector funds
As the benchmark equity indices touch all-time highs, investors are looking for value in sectoral funds. In August, net inflows in these funds touched `4,806 crore, the highest among all equity mutual fund categories and a whooping 236% rise over July inflows. Sectoral/thematic funds accounted for 24% of the total monthly net flows in August on the back of five new fund offerings.
Sectoral mutual funds invest in stocks of companies operating in a specific sector and concentrate their portfolio in a particular market segment. Experts say mutual fund investors are accelerating their equity investments in sectoral funds anticipating robust returns on the back of higher economic growth translating into improved corporate growth and profitability.
While sectoral funds offer the potential for high returns, they also come with elevated risk due to concentrated exposure.
Investors must ensure that their risk tolerance aligns with the investment choices to maintain a balanced and sustainable portfolio.
Sectoral funds are designed to capitalise on sector-specific growth potential. Sectors often exhibit cyclical behaviour, and not all sectors perform uniformly within an economy. Anirudh Garg, partner and head, Research, Invasset, a portfolio management service, says by conducting thorough research and analysis, investors can identify sectors with strong growth prospects, making sectoral funds an appealing choice for achieving their financial goals. “This trend underscores investors’ willingness to take calculated risks in thematic schemes, reflecting their confidence in the current market environment,” he says.
Sectoral watch
Most sectors are cyclical, with periodic tailwinds and headwinds generating investor interest, due to
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