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Top Sectoral Mutual Funds to Invest Online in 2024

Top Sectoral Mutual Funds to Invest Online in 2024
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Sectoral funds, as the name implies, are dynamic equity schemes that heavily invest in a specific sector. Focused on companies of varying market sizes within that sector, common sectors in India include energy, infrastructure, healthcare, and utilities. In prosperous market conditions, sectoral funds can yield impressive returns by capitalizing on the growth of the chosen sector. Investors leverage their market and economic insights to profit from top-performing stocks.

However, due to their singular sector focus, sectoral funds pose a heightened concentration risk, limiting diversification and elevating overall risk. Market downturns coupled with poor sector performance can result in significant losses. The diverse sectors of the Indian economy, such as pharma, banking, and technology, offer promising opportunities for sectoral funds. These sectoral thematic mutual funds strategically invest across small, mid, and large-cap companies within the chosen sector, enabling investors to capitalize on sector-specific growth.

What are Sectoral Mutual Funds?

Navigate the complex landscape of sectoral and thematic mutual funds, where these open-ended investments funnel a minimum of 80% of their assets into specific sectors or themes, predominantly in equity and related instruments. In stark contrast to diversified equity funds, these options zoom in on singular themes—sectoral funds zeroing in on specific sectors like banking, and the best thematic funds targeting distinct opportunities such as ethical investments in Shariah-compliant stocks.

Thematic funds, though potentially offering more diversity than their sectoral counterparts, are not immune to market cycles. While the best sector mutual funds may yield optimal returns during growth stages, downturns in the chosen sectors or themes can significantly hamper the sectoral thematic funds performance. Investors should exercise caution, considering the unpredictable nature of these funds, and carefully time their exits to mitigate potential risks.

List of Best Sectoral Mutual Funds in India 2024

Now that we have covered what are sectoral funds, let’s have a look at the educational sector mutual funds list of the best sectoral mutual funds in India in 2024.

Fund NameAUM (in Cr)1-Y CAGR 3Y CAGRTill Date CAGR
DSP India T I G E R Fund₹3167.564.6%34.8%18.1%
ICICI Prudential Infrastructure Fund₹4574.464.3%38.8%16.3%
SBI Consumption Opportunities Fund₹2000.734.4%24.9%16.4%
Bank of India Manufacturing & Infra Fund₹217.857.1%30.8%11.8%
Nippon India Banking & Financial Services Fund₹5176.533.4%18.8%20.9%
ICICI Prudential Manufacturing Fund₹2708.663.3%30%22.5%
Sundaram Services Fund₹3230.834.7%21.2%20.9%
Kotak Infrastructure & Economic Reform Fund₹1477.346.7%31.7%11.3%
ICICI Prudential Banking and Financial Services Fund₹7322.223.7%12.3%16.5%
Invesco India PSU Equity Fund₹775.190.7%37.6%12.8%
Disclaimer: Please note that the above list is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing.

Note: The data on the best sectoral funds in India in the list is from 26th February 2024.  However, for real-time updates on share price and market trends, visit the smallcase stocks collection today!

Top 10 Sectoral Funds Overview 

The industry specific mutual funds listed above are in a league of their own. Here is a brief overview of the top sectoral funds listed above:

DSP India T I G E R Fund

DSP Mutual Fund’s Sectoral-Infrastructure gem – the Infrastructure Growth and Economic Reforms Regular Fund Direct-Growth. Launched on January 1, 2013, this fund boasts a decade-long track record. As of Feb 26, 2024, the AUM is worth ₹3167.5 cr, positioning itself as a medium-sized player in its category.

With a commendable expense ratio of 1.99, DSP’s offering outshines many of its sectoral infrastructure counterparts. The fund’s recent one-year returns stand at an impressive 64.6%, contributing to its remarkable CAGR of 18.1%. Notably, investors have witnessed their investments double every three years.

ICICI Prudential Infrastructure Fund

Over time, the Infrastructure index has demonstrated moderate performance. Nonetheless, funds within this category are scarce and have generally fallen short of matching the benchmark index. This segment also exhibits elevated volatility levels. Launched on August 31, 2005, this fund boasts a decade-long track record. As of Feb 26, 2024, the AUM is worth ₹4574.8 Cr, positioning itself as a medium-sized player in its category. Has an expense ratio of 1.98 and offers one-year returns at 64.3%, contributing to its remarkable CAGR of 16.3%.

SBI Consumption Opportunities Fund

SBI Consumption Opportunities Fund Direct-Growth is a thematic-consumption mutual fund investment by SBI Mutual Fund, launched on January 2, 2013. Managing ₹2000.7 Crores in assets as of February 26, 2024 with a competitive 2.1% expense ratio. Noteworthy returns include 34.40% and CAGR with 16.4% over the past year. This fund consistently doubles invested capital every three years, showcasing a decade of success. Explore SBI’s fund for impactful consumption opportunities.

Bank of India Manufacturing & Infra Fund

Bank of India Manufacturing & Infrastructure Fund-Growth is one of the best manufacturing mutual funds by Bank Of India Mutual Fund. Launched on March 5, 2010, it has 13 years and 10 months of operation, managing ₹217.8 Cr as of February 26, 2024. With a 2.43 expense ratio, it’s a standout in Sectoral-infrastructure funds. Notably, the fund yielded an impressive 57.1% return in the last year and boasts an 11.8% CAGR since inception, doubling investments every 3 years. A compact yet impactful choice for stability and growth.

Nippon India Banking & Financial Services Fund

Established on May 8, 2003, Nippon India Banking & Financial Services Fund, a Sectoral-Banking mutual fund by Nippon India Mutual Fund, has a noteworthy 20-year and 6-month history. As of February 26, 2024, the fund manages assets worth ₹5176.8 Cr, positioning it as a medium-sized player in its category. With an expense ratio of 1.92%, it surpasses the typical fees charged by other Sectoral-banking funds. Over the past year, the fund has yielded a 33.4% return. Since its inception, it has achieved an impressive CAGR of 20.9%, doubling invested capital every 4 years.

ICICI Prudential Manufacturing Fund

Introduced on  Oct 11, 2018, ICICI Prudential Manufacturing Fund, a thematic mutual fund by ICICI Prudential Mutual Fund, boasts a 5-year, 2-month track record. As of February 26, 2024, its AUM stands at ₹2708.6 Cr, categorizing it as a medium-sized fund in its class. With an expense ratio of 1.98%, it surpasses the average cost of most thematic funds. Over the past year, ICICI Prudential Manufacturing Fund – Growth has delivered an impressive one-year return of 63.3%. Since its inception, it has maintained a CAGR of 22.5%, with a motive to generate long-term capital appreciation by creating a portfolio that includes equity and equity-linked securities.

Sundaram Services Fund

Introduced on September 21, 2018, Sundaram Services Fund Direct–Growth, a thematic mutual fund under Sundaram Mutual Fund, boasts a 5-year and 3-month track record. With ₹3230.8 Cr in assets under management as of February 26, 2024, it stands as a medium-sized fund in its category. The fund’s expense ratio, at 1.94%, aligns with industry standards for thematic funds. Over the last year, Sundaram Services Fund has yielded one-year returns of 34.7% and a CAGR of 20.9%. Notably, the fund has consistently doubled investments every three years.

Kotak Infrastructure & Economic Reform Fund

Reform Fund, a Sectoral-Infrastructure mutual fund by Kotak Mahindra Mutual Fund, marks its 10 years and 10 months anniversary. As of February 26, 2024, the fund’s AUM stands at ₹1477.3 Cr, positioning it as a medium-sized fund in its category. Notably, the expense ratio is a competitive 2.08%, below the norm for Sectoral-Infrastructure funds. The Kotak Infrastructure and Economic Reform Fund Direct-Growth has exhibited a robust performance, yielding a 46.7% return in the past year. Since its inception, the fund has consistently delivered an average CAGR of 113.%. Remarkably, it has doubled invested capital every three years, making it a compelling option for investors.

ICICI Prudential Banking and Financial Services Fund

Launched on August 22, 2008, the ICICI Prudential Banking and Financial Services Direct Plan-Growth, a Sectoral-Banking mutual fund by ICICI Prudential Mutual Fund, has a 10-year, 10-month track record. With ₹7322.2 Cr AUM as of February 26, 2024, it’s a medium-sized fund. The expense ratio stands at 1.84%, surpassing the norm for Sectoral-Banking funds. Over the last year, the fund yielded a 23.7% return and a CAGR of 16.5%. 

Invesco India PSU Equity Fund

Launched on November 18, 2009, the Invesco India PSU Equity Fund Direct-Growth, a Thematic-PSU mutual fund by Invesco Mutual Fund, boasts a decade-long track record. As of February 26, 2024, the fund manages ₹775.1 Cr in assets, categorizing it as a medium-sized fund. With an expense ratio of 2.34%, it exceeds the typical fees charged by other Thematic-PSU funds.

Over the past year, the fund has delivered an impressive return of 90.7%, maintaining a CAGR of 12.8% since its inception. Notably, the investment has doubled every three years.

How Do Sectoral Funds Work?

The Indian economy is a mosaic of sectors, spanning the best IT sector mutual funds, banking sector mutual funds, pharma sector mutual funds, chemical sector mutual funds, auto sector mutual funds and natural resources. Certain sectors exhibit remarkable performance over the medium to long term. Sectoral funds, strategically crafted to empower investors in seizing these opportunities, zero in on specific sectors.

Diverging from conventional equity mutual funds, sectoral funds channel their entire investments into companies within a particular sector. Sectors, essentially clusters of businesses offering akin products or services, like the technology mutual funds India with stalwarts such as Infosys and Microsoft.

Take, for instance, a Pharma Sectoral Fund, entailing investments not only in pharmaceutical manufacturers like Cipla but also in healthcare facilities and diagnostics, broadening its scope. These funds diversify across the spectrum of company sizes, encompassing large-cap, mid-cap, and small-cap, as long as they fall within the designated sector. SEBI stipulates that a minimum of 80% of a sectoral fund’s total assets must be allocated to equity and equity-related instruments within the specified sector.

Features of Sectoral Mutual Funds 

Explore the dynamic world of sectoral funds, where focus is the key. These specialized mutual funds target specific sectors, offering a tailored investment approach. Forget diversification – sectoral funds thrive on the pulse of their chosen industry. The following are a few key features of sectoral mutual funds:

  • Sector-Focused Magic: These funds zoom in on particular sectors, ditching the one-size-fits-all approach. Whether it’s tech, healthcare, or energy, there’s a sectoral fund for everyone.
  • Profit in Focus: With a whopping 80% invested in equity instruments, sectoral funds chase high returns. The secret? Seizing opportunities in booming sectors. Research is your ally – pick the right sector, align with your financial goals, and watch your investment flourish.
  • Risk Unleashed: Brace yourself for the thrill – sectoral funds are not for the faint-hearted. As equity players, they dance with market volatility. Specific sector focus? It’s a double-edged sword, reducing diversity but boosting risk. If the fund falters, selling stocks might not bail you out, leaving you exposed to liquidity risks.

Who Should Invest in Sectoral Mutual Funds?

Sectoral funds can offer potential rewards for savvy investors, but they come with high risk due to limited diversification. Before diving in, assess your financial goals, risk tolerance, and investment horizon. They can be ideal for:

  • Informed and Dynamic Traders: Novice investors may find sectoral funds challenging, requiring precise timing for entry and exit. Those actively engaged in market trends can leverage their insights for optimal sectoral performance.
  • Risk-Taking Investors: Given their high-risk nature due to limited diversification, sectoral funds are best suited for investors comfortable with navigating risk.
  • Strategically Aligned Investors: Investors seeking tactical allocation opportunities can capitalize on the cyclical nature of sectoral funds. By strategically selecting and holding onto a sector until it peaks, they can maximize their returns.

Factors to Consider Before Investing in Sectoral Mutual Funds  

Before diving into sectoral funds, consider key factors:

  • Risk Concentration: Sectoral funds lack diversification, confining investments to a single sector. This limits your portfolio’s resilience, making it susceptible to downturns in that specific sector.
  • Investment Horizon: Clear goals are crucial. Optimal results require a commitment of at least five years. Sectoral funds may take time to exhibit peak performance, aligning with long-term goals such as education funding or retirement planning.
  • Expense Awareness: Understand the impact of expenses on gains. Asset Management Companies (AMCs) charge an annual fee, known as the expense ratio. Knowing this cost is essential for accurate investment return calculations.
  • Strategic Exposure: Integrate sectoral funds into a well-diversified portfolio. Due to heightened risk, limit their share to 5-10% of your total investment.
  • Sector Performance Analysis: As sector trends are cyclical, assess both current and past sector performance. Focused funds necessitate understanding trends for informed predictions of future performance.

Benefits of Investing in Sectoral Mutual Funds

Investing in sectoral funds presents a strategic opportunity to enhance your portfolio by gaining exposure to specific high-potential sectors. Here are the key benefits:

Targeted Growth Potential

Sectoral funds provide a focused avenue for investing in specific sectors poised for growth. Not all sectors move uniformly with the economy; choosing sectors with exceptional performance can lead to substantial returns.

Cyclical Opportunities

Many sectors exhibit cyclical trends, offering the potential for significant returns based on well-timed investments. Strategic entry points, guided by analysis and research, can result in substantial profits.

Market Cap Diversity

While lacking industry and asset class diversification, sectoral funds maintain diversity in market caps. These funds invest across different market capitalizations, ensuring balance even if certain equities underperform.

Inflation-Beating Returns

A standout benefit of sectoral funds is their ability to deliver returns that surpass inflation rates. Adding these funds to a portfolio can be a proactive strategy to meet financial goals.

Long-Term Investment Potential

Sectoral funds are particularly suited for long-term investors looking to capitalize on sustained sectoral growth. Ideal for fulfilling objectives such as retirement planning through strategic sectoral investments.

Professional Management

Sectoral funds are professionally managed by experienced fund managers. Investors lacking the expertise to choose specific companies within a sector can benefit from professional management, ensuring potential for significant returns.

Risks Involved While Investing in Sectoral Mutual Funds

Investing in top sector mutual funds involves several risks, including:

  • Limited Diversification:  While these sectoral/thematic mutual funds offer diversification across companies, their exclusive focus on a single sector leaves investors vulnerable to significant drops in investment value if that sector experiences a downturn.
  • Cyclical Industries Impact: Certain industries, such as infrastructure and healthcare, are highly cyclical and influenced by economic cycles and market trends. Opting for a sectoral fund heavily reliant on these industries can result in drastic outcomes.
  • High Concentration Risk: Due to their narrow focus, sector funds carry a high level of risk. The fund’s performance is entirely dependent on the sector’s performance, and any downturn in the sector can lead to substantial losses for the entire fund.
  • Timing Sensitivity: Timing is crucial in thematic indices and sector fund investments. Investors must be mindful of when they enter and exit the fund to maximize returns. Poor timing could adversely affect the overall performance of the investment.

How to Choose Best Sectoral Mutual Funds for Investing?

When selecting sectoral mutual funds for your investment portfolio, active consideration of key factors is paramount. Begin by identifying your financial objectives and risk tolerance. Assess the performance history of sectoral funds within your preferred industry, focusing on consistency and growth trends.

Conduct in-depth research into the specific sectors you are interested in. Analyze market conditions, regulatory environments, and global trends influencing those sectors. Look for funds managed by experienced professionals with a track record of navigating the nuances of specialized markets.

Diversification remains crucial even within sectoral investments. Opt for funds that spread assets across various companies within the chosen sector to mitigate risk. Scrutinize expense ratios to ensure cost-effectiveness and evaluate how the fund aligns with your investment timeline.

What are the Returns on Sectoral Mutual Funds & How are They Calculated?

Calculating returns on sectoral mutual funds involves a dynamic process that reflects the performance of specific sectors within the market. Active portfolio management plays a pivotal role in optimizing returns for investors. Fund managers analyze the financial health and growth prospects of companies within the chosen sector, making strategic decisions to maximize profitability.

Market experts employ various financial metrics to evaluate sectoral fund performance. Earnings per share (EPS), price-to-earnings ratio (P/E ratio), and return on equity (ROE) are among the key indicators scrutinized. By staying attuned to sector-specific developments, fund managers adapt their investment strategies to capitalize on emerging opportunities and navigate potential risks.

Additionally, total returns on sectoral mutual funds encompass both capital gains and dividends. The capital gains result from the appreciation of stock prices within the chosen sector, while dividends represent a portion of the profits distributed to investors. This dual approach provides a comprehensive view of the fund’s overall performance.

Taxability on Sectoral Mutual Funds

Understanding the tax implications of sectoral funds is crucial for optimizing post-tax returns. Here’s a concise breakdown:

Taxation of Sectoral Funds

Short-Term Capital Gains (STCG):

  • Gains from selling within 1 year are STCG
  • Tax: 15% on these gains

Long-Term Capital Gains (LTCG):

  • Gains from holding for more than a year are LTCG.
  • Tax-free gains up to 1 lakh in a financial year.
  • Gains beyond 1 lakh taxed at a 10% rate.

To Wrap It Up…

The active management approach of the best sectoral mutual funds allows investors to align their portfolios with evolving market dynamics, providing a tailored strategy to capitalize on sector-specific growth opportunities. As the investment landscape continually evolves, the adaptability and proactive nature of sectoral funds stand out as valuable tools in the pursuit of financial goals.

Investors must remain vigilant, seizing opportunities, and reassessing their portfolios in response to shifting economic climates. Sectoral mutual funds, with their focused investment approach, empower investors to actively shape their financial destinies, making them a compelling choice for those seeking a proactive and strategic investment strategy in today’s ever-changing markets.

FAQs

1. How long should I stay invested in Sectoral Mutual Funds?

Every sector carries cyclical risks, and almost every sector has undergone cycles for various reasons. Notably, Technology and Commodities experienced well-known downturns post-1999 and 2010, respectively. Thus, opting for a more proactive and diversified approach to investing even in the top 5 thematic mutual funds requires research.

2. Where do Sectoral Mutual Funds invest?

Sector Mutual Funds actively invest in specific sectors of the economy, such as utilities, energy, or infrastructure.

3. What are the returns on Sectoral Mutual Funds?

Sectoral/thematic mutual funds returns vary based on market conditions and the specific sector’s performance. Investors should note that past returns do not guarantee future results. It’s essential to conduct thorough research on the chosen sector and stay informed about market trends.

4. When should I invest in Sectoral Mutual Funds?

For optimal results in sectoral mutual funds, it’s advisable to invest when the sectoral up-cycle is commencing. The strategy is to make purchases at the beginning of the cycle and exercise patience.

5. What is the lock in period for sectoral mutual funds?

The lock-in period for sectoral mutual funds varies depending on the specific fund and its terms.

6. What is the difference between index funds and sectoral funds?

Index funds and sectoral funds cater to distinct investment objectives and risk preferences. If you prioritize a targeted industry or possess a higher risk appetite, sectoral funds may align better with your goals. On the other hand, if you seek broad market exposure and prefer lower fees, index funds are a more suitable choice.