Normally equity funds invest in multiple sectors as per the fund mandate and at the discretion of the fund manager. But if a fund invests only in one sector - like Information technology or Banking stocks or pharma - they are called SECTOR FUNDS. And if they invest in a theme - like Infrastructure, consumption etc - they are classified as THEME FUNDS.
Though investing in a sector fund or theme fund is risky - they are not as risky as investing directly in stocks - since the fund manager invest in 20 to 30 stocks based on his research and analysis. As a result diversification helps investors in managing risk better. For those investors who are venturing in stock market where the probability of making profit hinges on individual stocks - theme fund or sector fund could be a better bet.
And in many occasion we paint with same brush. For instance - we classify all pharma company as one. But in reality there are many sub categories in pharma - domestic formulation, export market, CDMO, Hospital and diagnostics. And in each categories you have a dozen or two stocks. In a mutual fund, the fund manager is the best person to decide on which ones to invest. All we need to do is identify the sectors / themes that we like and invest in the best mutual fund in the category.
And the proof is in the pudding. In the last 2 years, when broader market did not do well - Pharma and Healthcare sector has done pretty well. While your normal equity mutual fund would also have invested in this sector - other sectors would have dragged the returns. Hence if you want to reap the full benefit of a sector - you can consider investing in relevant sectoral funds keeping in mind the risk - reward payoff. But keep in mind - all funds in the same sector are not equal. Those who got their calls right would be best performing and you need to identify them and invest.
No comments:
Post a Comment