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What is the Risk Associated with Sector Funds?

Mutual Funds99 views

Highlights

  • Sector Funds can fetch you good returns, if you have extensive knowledge about the sector.
  • Banking and Technology sector funds are on the run. Some funds have provided returns upto 14.94%.

For those of you who are not familiar with what sector funds are – these are funds that has large corpus of their investment in a particular sector. In India, some popular sectors that mutual funds invest in are pharma, technology, FMCG, banking & financial services and infrastructure. As these are sector specific funds, there’s less room for diversification. A diversified portfolio is what minimizes the risk profile of a mutual fund. Thus, the risk associated with sector funds is high.

Equity schemes are considered to be investment avenues with high risk options. Normally, if you notice the riskometer of all equity mutual funds, sector funds are marked as ‘high risk’ funds. They share the same space of risk as that of small cap funds followed by mid cap funds followed by large cap mutual funds. Risk is high in sector funds because all the bets are on only one sector, which investors believe will outperform all other sectors. Whereas, other funds invest in a diverse group of companies across sectors, so the risk is balanced. If one or two stocks fail miserably, there are other stocks as a backup. But this is not the case with sector funds.

Which Investors should Opt for Sector Funds?

You wouldn’t have missed the disclaimer associated with mutual funds – “Mutual fund investments are subject to market risks. Please read the scheme documents before investing.” How much ever irritating it may sound, but it does make sense. Before investing, one should always assess their risk profile and only invest in schemes which are in line with their risk profile.

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Retail and new investors should refrain from investing in sector funds as the risk appetite needed for these investments is very high. Investment in sector funds require a certain degree of knowledge and acumen about the sector the investor is going to invest in. This is why only experienced investors with a long investment horizon and a large risk appetite should invest in sector funds. These funds are meant for aggressive investors with intuitive knowledge about the sector, whose intuitions are based upon their thorough research.

Recommended Sector Funds to Invest in with their Risk Profile!

Sector Fund NameRiskometer1-year
Return
3-year Return5-year
Return
Technology SBI Technology Opportunities FundHigh4.57%12.87%10.41%
ICICI Pru Technology FundHigh0.31%14.53%10.45%
BankingReliance Banking FundHigh-9.71%9.90%11.74%
ICICI Pru Banking and Financial Services FundHigh-3.73%11.07%14.94%


Note: All the data  that has been mentioned in this articleis sourced from Value Research as on Aug 20, 2019. All the data here are in regards to Regular Plan.

How to Invest in Sector Funds Online?

If you wish to invest in Sector Mutual Funds, you can do so through Wishfin, a financial marketplace, where you can choose the best sector funds for you and rule out the ones that doesn’t seem a great fit by comparing. To invest, all you have to do is follow the below mentioned steps:

  • Log on to www.wishfin.com
  • Go  to ‘Mutual Funds’
  • Click on on ‘Login/Register


If you are a new investor who is keen on investing, you need to follow the below mentioned registration process.

Registration Steps:

  • Mention your mobile number
  • Click on ‘Next’
  • Enter the One-time Password (OTP) received on your mobile number
  • Click on ‘Verify and Continue’
  • Mention full name, email, city
  • Create a password that must have the required number of alphabets, numeric and special characters
  • Click on ‘Sign Up’
  • Mention a few more details before the registration can be made successfully
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Login Steps

  • Mention your email or mobile number
  • Click on ‘Get OTP’ to receive the same
  • Enter OTP at the prescribed space
  • Click on ‘Login’
  • Go to ‘Explore Mutual Funds’
  • Go to ‘Equity’ and then on to ‘Sector Funds’
  • Click on ‘Invest’ below any of the sector funds shown above

Disclaimer: Mutual Fund Investments are subject to market risks, read all scheme related documents carefully before investing.