Sector Funds is mutual funds that invests in shares of companies operating in specific sectors and thus are known as Sector Funds. The fund is diversified into specific sector and its close substitutes or alternatives. The objective of the fund is to reap benefits out of potential growth in specified industry. Sector Funds are impacted more by performance of the concerned sector rather than the overall market sentiments. For instance, Banking Sector Funds will comprise of investments in Banking Stocks, while IT fund will comprise of investment in IT and Technology related entities.
Important Aspects of Sector Funds:-
- Sector Funds offer minimal diversification of funds and is primarily concentrated on specific sector.
- It carries more risk as compared to Equity Mutual Funds as diversification of funds is restricted.
- Sector Funds do tend to perform well when the stock market is choppy and going through a lean period. Few sectors move in the opposite direction to the market.
- Sector Funds is ideal for Investors whose portfolio lack investment in particular sector and there lies a strong growth potential in the concerned sector.
- Sector Funds are directed towards aggressive investors who are willing to take additional risk to gain potential high return.
- Investors should remain invested in Fund for atleast 5-10 years to witness substantial return on the investment depending on the performance of the sector.
Potential Sector Fund Investment options:-
Sector Funds: Investment Perspective
Investment in Sector Funds does require in depth knowledge about the industry as well as market trends. It does offer a potential high return investment option but at the same time carries a greater risk as compared to Equity Mutual Funds. Investment in Sector Funds should not be undertaken without adequate understanding of the Fundamentals of the Industry.
Individuals should look to invest in Sector Funds with the objective to widen their portfolio reach and invest in sector which promises to be very rewarding in the future.
If we observe closely, in the last decade Sector Funds have outperformed the Equity Funds. The primary reason being the turbulent economic scenario coupled with the recession which hit the world in 2008. However, these trends are temporary phenomenon and may not reflect the true picture under normal scenario.