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This article gives you an overview of Sector Funds. The prudence behind investing in sector funds is highlighted, the disadvantages are discussed and the funds that are available in India are enlisted here.

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What are Sector Funds?

An overview:
Sector funds are those mutual funds or ETFs that invest in a single sector like Information Technology, Telecommunications, Pharmaceuticals, etc. In this type of investment there is very little or no diversification.

The purpose of sector funds is to take advantage of a growing sector. So it is important to understand the various sectors and the trends in their growth. Exiting at the right time is crucial to avoid loss. If you are holding a wrong sector at the wrong time it will adversely affect your portfolio.

Is it prudent to invest in Sector Funds?
Every investment has its pros and cons. As they say nothing succeeds like success. On hindsight it is very easy to conclude that the investment went sore due to wrong choice of the sector. But deciding on the right sector is very difficult. It is advisable that a new investor diversifies his portfolio. Also try to choose a growing sector which does not already feature in your portfolio. While diversification is always a safer bet, if you do know that a particular sector is growing and bound to stay there, then you can choose to take the risk.

Features, Advantages and Disadvantages:
The distinguishing features of the sector funds are the concentration in a particular line of business or sector and the higher volatility when compared to the stock market in general. These features can serve both as advantage and disadvantage to the investor. If the particular sector is in the growth phase (for e.g., the IT industry in the 2000s was in the growth phase) your investment can come good. If you held on or purchased the IT sector stocks in, say, 2008 your portfolio would have gone through crisis.

Though you can argue that focused investment can create a huge dent in your portfolio, many have profited from the growth in specific sector like the IT sector in 2000, the financial sector in the mid 1990s, the current real estate and natural resources and precious metals. Therefore depending upon the individual’s risk taking ability and need sector funds can give your portfolio the required boost. Investing in a particular sector can be done either through direct stock buying or through sector based mutual funds. When it comes to the mutual fund you have the added advantage of the experience of the fund manager.

The sector funds:
The choice of sector funds is many and you must take a wise call on where to invest and how much to invest depending on your needs and the exposure risk.

ICICI Prudential FMCG Fund – Growth: This fund concentrates on the Fast Moving Consumer Goods. This is a growth fund

ICICI Prudential FMCG Fund – Growth: This is also a FCMG sector fund, but the fund plan is dividend.

SBI Magnum Sector Funds Umbrella – FMCG is offered by SBI in the same sector.

There are many funds that are available in the pharma sector like,

UTI Growth Sector Fund - Pharma and Healthcare,
SBI Magnum Sector Funds Umbrella – Pharma, Reliance Pharma Fund, etc.

Other sector funds that are available are:
  • Canara Robeco Infrastructure
  • UTI Transportation and Logistic Fund
  • Tata Life Sciences and Technology Fund
  • Franklin Infotech Fund

  • bama:
    good article
    09-Aug-2012 05:12 PM