If you’re considering investing in sectoral mutual funds, it’s crucial to focus on schemes that have performed well consistently. Sectoral or thematic mutual funds, as regulated by SEBI, invest a minimum of 80% in a specific sector or theme, such as IT, healthcare, infrastructure, or energy. While many investors are drawn to past returns, wealth advisors caution against relying solely on historical performance. However, reviewing these figures can provide useful insight into potential investments.
What Are Sectoral/ Thematic Mutual Funds?
Sectoral and thematic funds are mutual funds focused on a particular sector or theme. For instance, a healthcare sectoral fund will invest predominantly in companies related to healthcare. These funds are ideal for investors who believe a specific sector will outperform others over time. Keep in mind, these funds are often more volatile compared to diversified funds.
Impressive Performers in the Sectoral Mutual Fund Space
As of October 2024, certain sectoral mutual funds have delivered exceptional returns, outperforming other equity mutual funds. Over the last five years, some funds have provided returns exceeding 25% compound annual growth rate (CAGR). These top performers typically belong to sectors like infrastructure, IT, healthcare, energy, and manufacturing.
Here are the top-performing sectoral funds:
- Quant Infrastructure Fund: 36.11%
- ICICI Prudential Commodities Fund: 32.63%
- ICICI Prudential Infrastructure Fund: 32.16%
- DSP Healthcare Fund: 32.35%
- Bandhan Infrastructure Fund: 31.12%
- Nippon India Power & Infra Fund: 31.30%
- Invesco India Infrastructure Fund: 31.70%
These sectoral funds have not only provided higher returns compared to other schemes but also managed to sustain their performance during different market phases.
A Look at the Sectoral Mutual Fund Market
As per the latest AMFI data, sectoral mutual funds have garnered significant investor interest. In September 2024 alone, ₹13,255 crore was invested in these schemes. The total assets under management (AUM) in this category have grown to ₹4,67,188 crore by the end of September, which is the highest among all equity mutual fund categories, including flexi cap, ELSS, large cap, mid cap, and small cap funds.
How to Approach Sectoral Mutual Fund Investments
Despite the impressive returns, wealth advisors caution that sectoral or thematic funds come with higher risks. These funds are more vulnerable to sector-specific downturns, making them less stable than diversified mutual funds. It is generally recommended to limit your exposure to these funds to around 20% of your overall portfolio to manage risks better.
No Guarantees in Mutual Fund Returns
As attractive as these returns may be, it’s important to remember that past performance does not guarantee future returns. Market conditions can change, and sectoral funds may not always sustain high returns in the future. Therefore, consult with a financial advisor before making any investment decisions and ensure that your portfolio is well-diversified to mitigate risk.
