As a prudent mutual fund investor considering an equity sectoral mutual fund, it’s crucial to understand that the performance of these funds is closely tied to the economy’s overall growth. These funds, due to their lack of sector diversity, are considered among the riskiest mutual funds. Therefore, it’s essential to approach them with a cautious and informed mindset.
What are equity sectoral mutual funds?
Sectoral funds are equity mutual funds that invest at least 80% of their investments in stocks of a particular sector. They are specialized investment vehicles that focus on specific sectors within the market. These funds allow investors to gain targeted exposure to market areas that align with their convictions or expectations for better future growth.
Sectoral funds example
Sector funds concentrate on a particular industry, such as technology, infrastructure, pharma, and banking. Since these funds are an equity fund category, they are taxed like any other equity fund.
Redeeming the shares within the one-year holding period provides short-term capital gains. These profits are taxed at 15% regardless of the income tax rate. Long-term capital gains are incurred on selling fund units after a one-year holding period, and these gains are taxed at 20%.
Top 4 sectoral mutual funds
Sectoral mutual funds are known to give high returns of double digits, provided one is willing to take high risks. As per the table below, the data by value research shows that the sectoral Infrastructure has given the highest annualised returns of 70.45%, 35.11%, and 27.42% in the last 1,3 and 5 years, respectively, as of 18 June 2024.
Sectoral mutual funds
Sectoral funds concentrate all their investments into a single sector, which makes them very risky. They can perform well when the market is doing well but can result in a loss if the market isn’t favorable. New investors should stay away from sectoral funds. Experienced investors who are convinced about the sector and can afford the high risk can consider investing between 5% and 10% of their portfolio in these funds.
Sectoral funds are considered to be among the riskiest types of mutual funds because they primarily invest in one sector, lacking sector diversity, which is the main cause of their high risk. Therefore, here is why it is important to approach investing in these funds cautiously. Business Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
