Sectoral mutual funds, Their Benefits and Drawbacks.
As the name suggests, sectoral mutual funds invest primarily in the stocks of specific sectors, such as real estate/infrastructure, technology, pharmaceuticals, banking, and financial services.
And, as per SEBI's guidelines, these types of funds have to invest minimum 80% of their assets in equity and equity-related instruments. It means, 80% of the AUM has to be invested in stocks and derivatives of companies belonging to a particular sector. You can refer to SEBI'S circular SEBI/HO/IMD/DF3/CIR/P/2017/114 for more information about it.
Examples of Sectoral Mutual Funds
1. ABSL Banking and Financial Services Fund is a sectoral fund which invests in banking and financial sector.
As of date this fund's portfolio has invested over 96% in equities and the remaining in debt and cash.
2. HDFC Pharma And Healthcare Fund invests in the pharmaceutical and health sector. This fund has invested over 98% in equities. You can find more information about the fund here.
Also learn about: What are liquid funds?
What are the benefits and drawbacks of sectoral mutual funds?
Benefits;
A) Due to sector-specific, sometimes their returns or better than other funds when that specific sector's stocks perform well.
B) They are recommended for investors who are seeking appreciation of their capital in the long run.
C) They have high liquidity because most of the assets are invested in equities which can be bought and sold easily.
D) They are well diversified among the various stocks of a sector.
E) They can be a powerful hedging option i.e. when the whole economy is in a different direction than the sector.
Drawbacks;
A) Not suitable for investors who can't stick to the fund for the long term.
B) If the sector is underperforming, the returns of the fund may lag behind the market.
How can you invest in sectoral mutual funds?
You can invest in sectoral mutual funds in the following ways;
Online;
- Visiting the website of the AMC.
- Through the websites of distributors and online platforms (check their authenticity)
Offline Mode;
You can also invest in sectoral mutual funds by visiting the branches of mutual funds in your city or town. You can locate the branch in your city through the website of the AMC.
Also Learn About; What are the Index Funds in India?
