You may want to invest money in rapidly expanding industries like healthcare, infrastructure, and information technology to get amazing returns. However, it's not easy for you to directly invest in these sectors. Sectoral Mutual Funds allow you to grab the opportunity to invest in growing industries in India.
What is a Sector Mutual Fund?
Sector Mutual Funds pool money from investors like you and invest it in securities of entities belonging to a particular sector. These funds aim to capitalise on the growth opportunities in that particular industry but offer little to no diversification.
Types of Sectoral Mutual Funds in India
- Technology Funds: Invest in IT and tech companies.
- Banking and Financial Services Funds: Focus on banks, NBFCs, and financial firms.
- Real Estate Funds: Invest in real estate and property development sectors.
- Pharma Funds: Target pharmaceutical and healthcare companies.
- Energy Funds: Invest in oil, gas, and renewable energy sectors.
- Infrastructure Funds: Focus on construction, real estate, and related industries.
- FMCG Funds: Invest in fast-moving consumer goods companies.
Advantages of Sectoral Mutual Funds
- Rapid growth potential: Focus on high-performing sectors can lead to significant returns.
- Expert management: Managed by professionals with expertise in the specific sector.
- Beat inflation: You can invest in sectors like gold which grow inversely to inflation to earn returns that beat inflation.
Who should invest in Sectoral Funds?
You should invest in Sectoral Funds if you:
- Have a high-risk appetite and want higher returns.
- Are knowledgeable about or have a strong interest in a specific sector.
- Are looking to capitalise on the growth potential of a particular industry.
Taxation of Sector-based Funds
- Dividend: The dividend received is taxable at your regular slab rates.
- Capital gain: The taxation of capital gains depends on whether the fund is equity or debt-oriented.
- Equity-oriented Fund: Short-term gains taxed at 20% and long-term gains at 12.5% (above ₹1.25 lakh).
- Debt-oriented Funds: If purchased after 1st April 2023, all gains are deemed to be short-term gains and are taxed at regular slab rates.
Factors to consider before investing in Sector Funds
- Growth potential of the sector: Research about the sector you are investing in to ensure that it has a promising future.
- Expertise: Ensure that the fund managers have experience of the sector you’re investing in.
- Diversification: Avoid investing all your funds in Sectoral Funds and balance with other investments.
Risks involved while investing in Sectoral Mutual Funds
- Volatility: Sector Mutual Funds offer no diversification because they focus on specific sectors. As a result, these funds are more prone to volatility.
- Sector-specific risks: Specific risks such as technological changes, changes in laws, or geopolitical events can heavily affect your returns.
Also Read: Does NAV matter in Mutual Funds?
Conclusion
Sector Mutual Funds allow you to participate in the growth of a specific industry. You can invest in healthcare, infrastructure, and any other industry you are a part of. These funds lack diversification, so you can balance this by investing some of your funds in other Mutual Fund types or other securities like stocks and Bonds.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
