- Technology funds invest in stocks of technology companies and benefit from their earnings
- Of late, earnings have been lacklustre leading to suboptimal returns from these funds- So shall you invest in these funds - Read this post that gives you a clue!
There are different kinds of equity funds and can be divided into three categories-diversified equity funds, sector funds and thematic funds. Sector funds are those funds that invest only in one particular sector. To know more about sector funds you can read another post of ours-https://www.wishfin.com/mutual-fund/sector-funds-are-these-a-good-investment/. Technology funds are a type of sector funds, let us understand more about them.
What are Technology Funds?
As the name suggests, these funds invest only in stocks that are a part of the technology sector in India. Most of these funds invest in names like Infosys, Wipro, HCL Technologies, TCS, Mindtree, etc. These funds cannot invest in any other sector except technology. A typical portfolio would comprise the top 10-20 technology companies in India.
The returns from these funds are dependent on the growth in revenue & profits of technology-based companies. Most of these companies export software and provide services to global clients. Thus, the success of these companies is linked more to the economies and regulations in other countries, especially the US and Europe. Some of the Indian technology companies are market leaders in certain segments. Most of them have grown primarily on the back of cheap labour cost, English speaking population and reasonable tech skills in India. Of late, stricter regulations in some countries and a lack of innovation have hurt Indian technology companies. This has a direct impact on the performance of technology funds. Let us now look at the three best technology funds.
Best Technology Funds
These are the three best technology funds in India-
Franklin India Technology Fund
This fund is offered by Franklin Templeton Mutual Fund. These are the key points to note about this fund:
- The fund manages an AUM of INR 246 crores and has delivered 17.50% annualized returns since launch.
- The fund was launched on 22nd August 1998 and its benchmark is S&P BSE Tech.
- The current portfolio has 12 stocks with 83% in large-cap and 17% in mid and small-cap stocks.
Aditya Birla Sun Life Digital India
This fund is offered by Aditya Birla Sun Life Mutual Fund. These are the key points to note about this fund:
- The fund manages an AUM of INR 381 crores and has delivered 8.49% annualized returns since launch.
- The fund was launched on 15th Jan 2000 and its benchmark is S&P BSE Tech.
- The current portfolio has 16 stocks with 69% in large-cap and 31% in mid and small-cap stocks.
SBI Technology Opportunities Fund
This fund is offered by SBI Mutual Fund. These are the key points to note about this fund:
- The fund manages an AUM of INR 171 crores and has delivered 12.91% annualized returns since launch.
- The fund was launched on 5th July 1999 and its benchmark is S&P BSE Tech.
- The current portfolio has 12 stocks with 89% in large-cap and 11% in mid and small-cap stocks.
Should You Invest in Technology Funds?
Technology is the buzzword today with rising usage in every sector and aspect of life. Globally, some of the technology companies are among the largest corporations in the world and also among the best-performing stocks. NASDAQ, the technology index in the United States, has been one of the best performing global indices. This is because of a rapid increase in digitization and innovation which these companies have done. On the other hand, most of the Indian technology companies have operated with a business model of providing software and backend services to corporations in the west. They have been pretty successful in doing so owing to a young English speaking population and labour arbitrage. However, they have lacked innovation to propel them to the big league of the best global technology companies.
Most of the Indian technology companies have steady revenues and cash flows but growth has been lacklustre. Earnings growth is the most important factor for a stock to do well. This has been missing in the case of Indian companies which is also reflected in the returns from technology stocks and technology funds. Going forward, returns from technology funds would depend on future growth these companies are able to exhibit. These funds are also prone to volatility owing to movement in currency and change in regulations.
We recommend avoiding investment in technology funds due to the above-mentioned reasons. If you want some allocation to the best technology companies, it is advisable to invest in multi-cap funds that hold some allocation to the best technology companies/stocks. To know about the best multi-cap funds, you can read another post of ours- https://www.wishfin.com/mutual-fund/five-best-performing-multi-cap-funds-to-invest-in/