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Sectoral funds select shares for investment from a particular sector. Normally, they carry a higher risk than diversified funds. There are times when certain sectoral funds have significantly outperformed the market. Many economic sectors tend to be cyclic in nature due to which they might deviate from the broader markets.
Let us see last 1 year's performance of Sectoral Funds:-
| Category | 1 Month | 3 Month | 6 Month | 1 year |
|---|---|---|---|---|
| Equity Sectoral Fund-Service Industry | 6.18 | 8.64 | 7.28 | 9.74 |
| Equity Sectoral Fund- Energy & Power | 9.08 | 7.42 | 5.93 | 7.24 |
| Equity Sector-Bank & Fin Service | 7.14 | 12.33 | 7.94 | 5.42 |
| Equity Sectoral Fund-Auto | 6.20 | 16.46 | 19.18 | 31.51 |
| Equity Sectoral Fund-Infrastructure | 8.11 | 13.84 | 12.24 | 17.42 |
| Equity Sectoral Fund-Consumption | 5.54 | 13.48 | 12.71 | 15.25 |
| Equity Sectoral Fund-Technology | 5.04 | 5.00 | -8.96 | -9.85 |
| Equity Sector-Pharma & Heath | 2.01 | 2.73 | -1.06 | -9.74 |
You can see from the above report that the returns in Technology Funds lagged other sectoral funds in short term(1-year) returns. There may be several reasons for the downturn in Technology Fund such as supply side pressure, high Inflationary environment worldwide etc. but one can be bullish on the potential of the Indian IT sector.
There have also been times in the past when the Technology sector provided lacklustre returns for a brief span of time only.
Now let us analyse the last 10 years' return of Sectoral Funds:-
| Category | 1 Year | 3 Year | 5 Year | 10 Year | |
|---|---|---|---|---|---|
| Equity- Sectoral Fund- Technology | -9.85 | 27.56 | 25.19 | 19.56 | |
| Equity Sectoral Fund-Service Industry | 9.74 | 22.71 | 12.29 | 18.78 | |
| Equity Sectoral Fund-Auto | 31.51 | 23.38 | 6.74 | 17.96 | |
| Equity Sectoral Fund-Consumption | 15.25 | 20.49 | 13.36 | 15.93 | |
| Equity Sector- Pharma & Health | -9.74 | 24.21 | 14.11 | 14.23 | |
| Equity Sectoral Fund-Infrastructure | 17.42 | 23.60 | 11.09 | 13.68 | |
| Equity Sector-Bank & Fin Service | 5.42 | 11.84 | 8.25 | 13.66 | |
| Equity Sectoral Fund- Energy & Power | 7.24 | 25.00 | 10.85 | 13.45 |
You can see from the above comparison that the Technology Sectoral fund has outperformed in long term in comparison to the returns of all Sectoral Funds despite the last 1 year's lacklustre performance. If you are an investor with a higher risk appetite and willing to invest for the long term, then sectoral funds can be considered. SIPs can be a good strategy for accumulating these funds as you can get the benefit of rupee cost averaging and avoid market timing.
Seasoned Investors who understand the market cycle can consider Technology Fund as a good long term SIP option for investment as the Technology sector may not perform in the short term but the long term potential of the sector remains intact.
Risk - Sectoral Funds carry the highest risk among all equity funds. Investors might face short term drawdowns and volatility also tends to be high. Sectoral funds like technology should only be considered by investors with high-risk appetite, long investment duration and the ability to cope with high volatility.
Disclaimer: This report has been prepared on the basis of data available to us and we have taken all precautions so that there are no errors and lapses. However, we do not assume any one responsibility for actions taken on the basis of this report. The user is advised to verify the contents of the report independently. The various reports have been calculated against respective scheme benchmarks for trailing for one year. Past performance may or may not be sustained in future. Mutual Fund investments are subject to market risks, read all scheme related documents carefully. Report date as on 21st Sep'22.
