Every investor along with a well-defined objective also has certain risk bearing capacities attached to his investment plan. Hence, it becomes important that they assess the risk & understand the risk return matrix. This becomes all the more important when some investors see high return prospective in one particular asset & are ready to expose one to high risks too.
Putting all your eggs in one basket: Sector Fund
A sector fund investing in stocks of companies belonging to specific sector or segment might entice the investor interested in betting aggressively on specific sector he believes has huge potential. For instance if an investor wants to invest in infrastructure or banking companies, he can do so by investing in sector funds focused on infrastructure or banking respectively.
Various aspects of Sector Fund:
These funds are like double-edged swords, which when carefully picked have the potential to generate enormous returns in a time frame however; their volatility makes them equally risky:
Types of Sector Fund:
Infrastructure Fund: This sector with huge potential has seen greater focus from government & rising interest from mutual fund houses. Majority of sector funds have infrastructure as their theme & has seen almost19 schemes launched in this space since 2004 alone . However, these funds have not been doing well for the last few years hence it is advisable to hold diversified funds with exposure in infra.
Banking & Financial Service Fund: Since banks form major part of this sector, it makes this sector highly volatile as banks are hugely affected by the developments in the economy.
Technology Funds: These funds came into existence when India established itself as a global giant in information technology & has grown enormously since. The sector, which flourished on account of various favorable factors, has also seen voltailty in past few years owing to various reasons such as currency fluctuations, moderating global demands etc. Despite of it the sector shows good potential to attract good valuations.
Healthcare & Pharma Fund: This sector is good bet for investments if growth in a company can be identified. In this sector, one can witness many instances pertaining to takeovers andexpiring patents which can make some stocks perform very well. Also, if any of the drugs are declared life-saving by the government, wherein the government is the major buyer, this may lead to lower margins, thereby affecting the profitability. However, there can also be cases where, due to the frequent and huge demand, the topline may increase rapidly and in turn, even the bottomline may show some growth.
Other Sectors: Other sectors where mutual funds have shown interest is the energy, power, entertainment, FMCG & services.
As you get a broader view of the Sector fund, investments in it can be considered according to your risk appetite with disciplined approach. In our next blog we discuss some trade-by to follow while investing in these funds.
Putting all your eggs in one basket: Sector Fund
A sector fund investing in stocks of companies belonging to specific sector or segment might entice the investor interested in betting aggressively on specific sector he believes has huge potential. For instance if an investor wants to invest in infrastructure or banking companies, he can do so by investing in sector funds focused on infrastructure or banking respectively.
Various aspects of Sector Fund:
These funds are like double-edged swords, which when carefully picked have the potential to generate enormous returns in a time frame however; their volatility makes them equally risky:
- Gives you greater exposure to a particular sector which you feel has the potential better than the diversified equity holdings
- Gives you the option to pick sector specific funds you are confident of performing well to get maximum returns
- A particular sector fund comprises of very few number of fundamentally strong stocks
- Fall in one stock my bring down the entire fund’s return
- Concentration only in specific sector makes the fund highly risky compared to other classes of funds
Types of Sector Fund:
Infrastructure Fund: This sector with huge potential has seen greater focus from government & rising interest from mutual fund houses. Majority of sector funds have infrastructure as their theme & has seen almost19 schemes launched in this space since 2004 alone . However, these funds have not been doing well for the last few years hence it is advisable to hold diversified funds with exposure in infra.
Banking & Financial Service Fund: Since banks form major part of this sector, it makes this sector highly volatile as banks are hugely affected by the developments in the economy.
Technology Funds: These funds came into existence when India established itself as a global giant in information technology & has grown enormously since. The sector, which flourished on account of various favorable factors, has also seen voltailty in past few years owing to various reasons such as currency fluctuations, moderating global demands etc. Despite of it the sector shows good potential to attract good valuations.
Healthcare & Pharma Fund: This sector is good bet for investments if growth in a company can be identified. In this sector, one can witness many instances pertaining to takeovers andexpiring patents which can make some stocks perform very well. Also, if any of the drugs are declared life-saving by the government, wherein the government is the major buyer, this may lead to lower margins, thereby affecting the profitability. However, there can also be cases where, due to the frequent and huge demand, the topline may increase rapidly and in turn, even the bottomline may show some growth.
Other Sectors: Other sectors where mutual funds have shown interest is the energy, power, entertainment, FMCG & services.
- Energy & Power Sector can be part of infrastructure & are very volatile. There are lots of factors affecting their performance & can give extreme returns
- Entertainment with few players in large cap category leads to over-exposure in few stocks making investments more risky
- FMCG sector can be good investment bet considering the FDI in multi-brand retail is open & willingness of foreign players to invest can be witnessed.
- Service sector funds are more diversified as they invest in wide services ranging from BFSI, telecom, IT & others
As you get a broader view of the Sector fund, investments in it can be considered according to your risk appetite with disciplined approach. In our next blog we discuss some trade-by to follow while investing in these funds.
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