Investing in mutual funds is an excellent approach to attain long-term objectives such as creating wealth for retirement by creating a diversified equities portfolio. There is a wide range of mutual fund types. In this blog post, we are going to examine sectoral mutual funds offered by asset management companies in India.
Understanding Sectoral Funds
Equity mutual funds that focus their investments on a certain industry or sector of the economy are known as sector funds. Sectoral funds have a more narrowly focused strategy than diversified equity funds, which make investments across a number of industries.
These funds primarily invest in businesses within a certain industry in an effort to take advantage of that industry’s development potential and performance. Additionally, sectoral funds invest in businesses of various sizes, including small, mid, and large-cap corporations.
The only requirement is that they must be in the same industry. Additionally, 80% of the fund’s total assets must be invested in equity and equity-related instruments of a certain sector, per SEBI regulations for all fund managers of sectoral funds.
Advantages of Investing in Sectoral Funds
Let’s look into the top 5 advantages of investing in sectoral funds:
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High Returns in Favourable Sectors:
When the selected sector performs well, sectoral funds have the potential to generate competitive returns. Investing in a sectoral fund might yield positive returns if your techniques and readings indicate that a particular sector has good growth possibilities. For example, the pharmaceutical industry expanded significantly during the COVID-19 epidemic, and investors in pharma sectoral funds received huge gains.
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Focused Exposure:
You can have focused exposure to a specific sector by using sectoral funds. Rather than spreading your assets over several industries, you can concentrate on one that fits your expectations and market trend analysis.
When the market is doing well, these funds have the potential to outperform diversified funds by capitalizing on sector-specific upswings. Investors can take advantage of India’s economic growth by matching their investments with macroeconomic trends.
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Tactical Allocation:
Investors who wish to make tactical allocations based on the cyclical nature of sectors can consider these funds. Knowledgeable investors can time their investments to profit from industry booms and busts.
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Professional Management:
Professional fund managers with experience in the specific industry that they invest in oversee sectoral funds. These managers look through a lot of data to find the most promising businesses in their industry. Without having to expend the time and energy necessary for independent research, investors can profit from these managers’ experience.
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Achieving Long-term Goals:
Sectoral funds offer investors a strategic advantage in achieving long-term goals by allowing focused investments in specific industries or sectors. By targeting sectors with high growth potential or favorable market conditions, investors can capitalize on opportunities for long-term wealth accumulation.
This specialized approach enables portfolio diversification while aligning investments with individual risk tolerance and financial objectives, ultimately fostering sustainable growth over time.
Conclusion
Remember that these funds work best when kept for an extended period and that your portfolio should be diversified, not just focused on them. For savvy investors looking to place themselves in promising industries strategically, sectoral funds can be a useful tool, but they do require careful thought and proactive management. If you are looking to invest in sectoral funds, open an account on Dhan and start investing today.
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