Sectoral funds are gaining popularity among investors seeking long-term returns. Choosing the best sectoral funds may help diversify your portfolio and build long-term wealth.
As the name suggests, with sectoral mutual funds, you need to invest in any specific sector. Some of the sectors perform extraordinarily well in the medium to long term. This way, investors also get good exposure to the best-performing stocks in the chosen sector.
Continue reading this blog to gain detailed insights about sectoral mutual funds, and how they work and to choose the best sectoral funds to invest in for the year 2024.
What Are the Various Types of Sectoral Funds?
There are various sectoral funds in the Indian economy. However, all these sectors keep on evolving considering many factors and developments. Let us look at the different sectoral funds:
- Information Technology (IT) Funds: These funds are invested in companies related to electronics, IT and more.
- Pharma Sector Funds: These are investments in pharma stocks, life science technology stocks, manufacturers of healthcare stocks etc.
- Energy Sector Mutual Funds: These include investment of funds in companies involved in the energy sector.
- Banking and Financial Services Funds: These include funds invested in banking, Financial Services and Insurance (BFSI) companies and such.
- Auto Sector Mutual Funds: Here, funds invested in auto sector companies include ancillary and manufacturing businesses.
Among these, BFSI mutual funds have recently gained major prominence in the market. Did you know that India's BFSI sector is projected to grow at a CAGR of 8.6% between 2023-2028, exceeding global average growth and fueled by factors like rising disposable incomes and urbanisation. On that note, Groww Mutual Fund is launching the BFSI Fund NFO. This is an open-ended equity scheme that focuses primarily on investing in banking and financial services-related sectors. The New Fund Offer will open on January 17, 2024, and will close on January 31, 2024.
What Are the Best Sectoral Funds to Invest in 2024?
Here are the some of best tech funds you may consider investing in 2024 based on last five-year performances:
Tata Digital India Fund
The regular plan of Tata Digital India provided an annualised return of 20.82% during the last five years. However, the direct plan yielded an annual return of 22.85%
SBI Technology Opportunities Fund
The direct plan associated with the SBI Technology Opportunities Fund has yielded an annualised return of 21.68% in the last five years while the regular plan has provided a 20.31% return. This scheme tracks the S&P BSE Teck Total Return Index.
ICICI Prudential Technology Fund
Investors can get a return of 21.33% from the regular plan of this fund scheme while the direct plan yields an annual return of 22.50% during the last five years.
Aditya Birla Sun Life Digital India Fund
The regular plan of this scheme fund yields a 20.44% return on an annual basis for the last five years. On the other hand, investors get a 21.76% annualised return from the direct plan of Aditya Birla Sun Life Digital India Fund.
How do Sector Funds Work?
In the case of sectoral funds, investors majorly allocate their funds to equities or equity-related instruments of companies within a specific sector. The fund money is generally invested in shares of companies, be it large, medium or small-sized. The main objective of investing in sectoral funds is to narrow down the investment of the fund and capitalise on the expansion of the chosen sector.
Thus, investors must examine the market trend, performances of stocks and the growth of the industry they wish to invest in. If the timing is perfect, investors can get rewarding returns but at the same time, because of the high volatility, they can turn upside down. Hence, it is crucial for financial experts to well research the market before investing.
What Are the Features of Sectoral Funds?
Some of the distinguishing features of sectoral funds are as follows:
- Diversification: Despite focusing on only one sector, sectoral funds can diversify through investment in stocks across market capitalization within it.
- Higher Risk: Sectoral funds are limited to a specific sector. Thus, the performance of the chosen sector also limits the performance of your portfolio.
- Peaks and Plunges: Each sector goes through phases of peaks and plunges. Regardless of this, you can invest via SIP. This way you can benefit from cost averaging and compounding.
- Long-term Investment: Sectoral funds are typically equity-oriented schemes. Thus, it will be beneficial if you invest aiming to achieve your long-term goals. This way, you can also achieve financial milestones that include child planning, retirement, marriage and so on.
The Bottom Line
By now, you must have a clear understanding of the best sectoral funds to invest in. Sectoral funds turn out rewarding and risky at the same time. Thus, make a thorough analysis of sectoral funds before you decide to invest. Investing in the sector with greater growth potential and vulnerability to market volatility will be beneficial in the long run.
Investing in the right sectoral fund will facilitate you to manage your investments with the sector to prosper in the upcoming years. So, to choose the best sector funds, keep on evaluating your investment objectives, analyse the risk tolerance and conduct thorough research of the past performance of the chosen sector.
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