List of Top 10 Sectoral Mutual Funds in India to Invest for 2025

Many investors look for ways to diversify their portfolios when investing in mutual funds. One method is investing in asset classes such as equity, debt, real estate, and hybrid funds. Another common strategy is investing in different economic sectors through sectoral mutual funds.

Sectoral mutual funds are open-ended equity schemes focused on sectors like energy, infrastructure, healthcare, and utilities. They invest in companies that have various market capitalisations within a particular sector. These funds can offer significant returns when the sector performs well, allowing investors to leverage their market knowledge for potential profits. This article will explore a list of the top sectoral funds across different sectors and themes. This article has comprehensively listed top sectoral funds spanning across different sectors, based on their 5Y CAGR.

List of Best Sectoral Mutual Funds in India (2024)

Here is a list of the top sectoral mutual funds based on their 5Y CAGR:

Fund Name	Sector	AUM (in Cr)	CAGR 3Y (%)	Expense Ratio	CAGR 5Y (%)
Quant Infrastructure Fund	Sectoral Fund - Infrastructure	3,599.01	24.23	0.66	34.89
DSP Healthcare Fund	Sectoral Fund - Pharma & Health Care	3,138.46	24.52	0.59	32.88
ICICI Pru Technology Fund	Sectoral Fund - Technology	13,495.32	10.04	0.98	31.46
Tata Digital India Fund	Sectoral Fund - Technology	11,835.20	13.18	0.41	31.29
ICICI Pru Pharma Healthcare & Diagnostics (P.H.D) Fund	Sectoral Fund - Pharma & Health Care	4,987.49	25.55	1.09	31.28
Bank of India Mfg & Infra Fund	Sectoral Fund - Infrastructure	519.36	26.53	0.75	31.25
Invesco India Infrastructure Fund	Sectoral Fund - Infrastructure	1,590.98	28.39	0.71	31.09
ICICI Pru Infrastructure Fund	Sectoral Fund - Infrastructure	6,779.16	32.79	1.23	30.73
Bandhan Infrastructure Fund	Sectoral Fund - Infrastructure	1,776.78	28.75	0.81	30.65
Mirae Asset Healthcare Fund	Sectoral Fund - Pharma & Health Care	2,770.21	19.95	0.49	30.32

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.

• Plan: Growth
• Category: Sectoral Funds (Infrastructure, Pharma & Healthcare, Consumption, Service Industry, Technology, Banks and Financial Services, Energy & Power, and Auto) 
• 5Y CAGR: Sorted from Highest to Lowest

Note: The data on the list of the best thematic mutual funds is from 24th November 2024. This data is derived from Tickertape Stock Screener.

🚀 Pro Tip: You can use Tickertape’s Stock Screener to research and evaluate stocks with over 200+ filters and parameters.

Overview of the Top Sectoral Mutual Funds

Quant Infrastructure Fund

Established in 1995, Quant Money Managers Limited focuses on delivering strong returns through its infrastructure-themed portfolio. Approved by SEBI in 2017, this fund boasts a NAV of ₹41.13 and a Sharpe Ratio of 1.36, highlighting steady risk-adjusted performance. Investors can start their journey with a minimum SIP of ₹1,000.

DSP Healthcare Fund

DSP Investment Managers, with a legacy tied to the 1860s through the DSP Group, brings over two decades of expertise to this healthcare-focused fund. Offering a NAV of ₹44.97 and an impressive Sharpe Ratio of 3.15, the fund is designed for investors seeking strong risk-adjusted returns in the growing healthcare sector.

ICICI Prudential Technology Fund

As a leading player in India’s mutual fund industry, ICICI Prudential Asset Management combines expertise with innovation in this technology-driven fund. With a NAV of ₹233.53 and a Sharpe Ratio of 1.55, it offers a promising opportunity for investors aiming to capitalise on technological advancements.

Tata Digital India Fund

Backed by Tata Asset Management’s 25+ years of investment expertise, this fund focuses on the booming digital sector. With a NAV of ₹61.06 and a Sharpe Ratio of 1.90, it strikes a balance between growth potential and risk-adjusted returns.

ICICI Prudential Pharma Healthcare & Diagnostics Fund (P.H.D)

This specialised fund from ICICI Prudential Asset Management targets the healthcare and diagnostics industries, offering robust growth potential. With a NAV of ₹40.39 and a Sharpe Ratio of 3.04, it demonstrates exceptional risk-adjusted performance. A minimum SIP of ₹5,000 makes it ideal for serious long-term investors.

Bank of India Manufacturing & Infrastructure Fund

Managed by Bank of India Investment Managers, this fund draws on over a century of the bank’s expertise and 14 years of fund management experience. It delivers exposure to manufacturing and infrastructure sectors with a NAV of ₹63.41 and a Sharpe Ratio of 1.62, offering a stable mix of returns and risk management.

Invesco India Infrastructure Fund

As part of the globally recognised Invesco brand, this infrastructure-focused fund provides exposure to high-growth infrastructure projects. With a NAV of ₹75.38 and a Sharpe Ratio of 1.82, it balances strong returns with measured risk.

ICICI Prudential Infrastructure Fund

This infrastructure-centric offering from ICICI Prudential AMC combines expertise with targeted sectoral growth. With a NAV of ₹198.12 and a Sharpe Ratio of 1.87, it’s a solid option for investors looking to tap into India’s expanding infrastructure landscape.

Bandhan Infrastructure Fund

Bandhan Mutual Fund’s infrastructure fund seeks long-term capital growth through an actively managed, diversified portfolio of equity and equity-related instruments in the infrastructure sector. With a NAV of ₹57.71 and a Sharpe Ratio of 1.82, the fund promises steady returns for investors aligned with India’s growth story.

Mirae Asset Healthcare Fund

Mirae Asset’s healthcare fund benefits from the group’s global expertise and local market insights. With a NAV of ₹41.20 and a Sharpe Ratio of 2.47, the fund is well-suited for those seeking strong risk-adjusted returns in the ever-expanding healthcare sector.

What are Sectoral Mutual Funds?

Sectoral mutual funds are equity schemes that focus on specific sectors of the economy, like utilities, energy, technology, healthcare and infrastructure. They invest in companies’ stocks within these sectors, spanning different market capitalisations and security types. These funds enable investors to benefit from the top-performing stocks in chosen sectors. 

By investing in businesses within the same industry, sectoral mutual funds provide exposure to specific segments of the economy. For example, sectors in India include technology, banking, pharma, auto, healthcare and natural resources, each with the potential for medium to long-term growth and profitability. Investors can leverage sectoral mutual funds to capitalise on growth opportunities within these sectors.

How Do Sectoral Funds Work?

The Indian mutual fund economy is a culmination of many sectors, spanning IT sector mutual funds, banking sector mutual funds, pharma sector mutual funds, chemical sector mutual funds, auto sector mutual funds and natural resources funds. Certain sectors can exhibit remarkable performance over the medium to long term. Sectoral funds are strategically crafted to empower investors to seize these opportunities by zeroing in on specific sectors.

Sectors are clusters of businesses offering akin products or services. For instance, a pharma sectoral fund entails 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.

Types of Sectoral Mutual Funds

Here are the various types of sectoral mutual funds available in India:

1. Utility Funds: These funds are focused on companies in the utility sector, these funds aim to offer stable dividends.
2. Natural Resources Funds: These funds invest in industries such as oil, natural gas, energy, forestry, and timber and target growth within natural resources.
3. Technology Funds: These IT funds provide exposure to the technology sector and cater to investors interested in technological innovations. These technology opportunities funds invest in technology stocks in the market. 
4. Financial Funds: These funds primarily invest in companies from the financial industry, including banking, insurance, and accounting firms.
5. Communications Funds: These funds invest in the telecommunications sector and internet-related companies, aligning with the evolving communication industry.
6. Healthcare Funds: These funds cover pharmaceutical companies, for-profit medical institutions, and biotechnology firms, supporting advancements in healthcare.
7. Precious Metals Funds: These metal mutual funds offer exposure to precious metals like gold, platinum, silver, copper, and palladium and cater to investors interested in the precious metals market.
8. Real Estate Funds: These funds enable small investors to participate in the real estate market, providing income and growth opportunities.

Note: These are just some of the sectors involved in the categorisation of sectoral mutual funds and there may be more. 

Features of Sectoral Mutual Funds 

The following are a few key features of sectoral mutual funds:

• Sector-Focused Investment: Sectoral funds are specialised mutual funds that concentrate on specific sectors of the economy. These funds categorise investments based on industry sectors, such as technology, healthcare, or energy. Unlike diversified funds that spread investments across various sectors, sectoral funds may place a significant emphasis on the performance of their chosen sector. This focused strategy may allow investors to capitalise on potential growth opportunities within a specific industry.
• High Potential Returns: These funds typically allocate a substantial portion—around 80%—of their assets into equity instruments, as mandated by SEBI regulations. This equity-heavy approach aims to deliver potentially high returns. Investors can benefit from the growth of sectors that outperform the broader market. By conducting thorough research, investors can identify sectors poised for growth and select sectoral funds that align with their financial objectives.
• Elevated Risk Profile: Sectoral funds are among the riskiest mutual fund investments. First, as equity funds, they are susceptible to market fluctuations and volatility. Second, their focus on a single sector reduces diversification, making them vulnerable to concentration risks. In the event of underperformance or market downturns within the chosen sector, the fund may face liquidity challenges, affecting the fund’s ability to meet redemption demands.
• Higher Cost Structure: Investing in sectoral funds can be costlier than investing in more diversified mutual funds. This higher cost is attributed to the specialised nature of these funds, which require in-depth sector-specific research and management expertise. The expenses associated with managing and monitoring investments in a single sector are passed on to investors through higher expense ratios and fees.
• Performance Variability: Sectoral funds’ performance can vary significantly based on economic cycles, sector-specific events, and market conditions. Different sectors experience distinct growth patterns and challenges, influencing the fund’s overall performance. Investors should know that returns from sectoral funds can fluctuate widely depending on these external factors, necessitating careful monitoring and strategic allocation based on market trends.

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:

• Active and informed investors who stay updated with market news and can anticipate sector performance over the medium to long term.
• Investors with a high-risk appetite are comfortable with the concentrated risk of sector-specific investments.
• Investors interested in tactical allocation aim to capitalise on sector cycles by strategically entering during downturns and exiting during upswings.

Benefits of Investing in Sectoral Mutual Funds

Here are a few potential benefits of investing in sectoral mutual funds:

Focused Exposure and Potential High Returns

Sector wise mutual funds offer focused exposure to specific sectors of the economy, such as technology or healthcare. Unlike diversified funds that spread investments across multiple industries, sectoral funds concentrate on a single sector. This focused approach may allow investors to capitalise on the growth potential of that sector potentially. 

For instance, during periods of sectoral outperformance, such as the initial stages of the COVID-19 pandemic for pharmaceuticals, sectoral funds have shown the potential to deliver significant returns, sometimes exceeding broader market indices.

Strategic Diversification within Sectors

While sectoral funds do not provide diversification across industries, they diversify within the chosen sector by investing in companies across various market capitalisations. This strategy may help mitigate risks associated with individual stock performance within the sector. 

By spreading investments across different-sized companies within the sector, sectoral funds aim to balance the portfolio’s overall performance, ensuring that the potential gains from outperforming companies can offset any underperformance from others.

Professional Management and Expertise

Sectoral funds are managed by professional fund managers who specialise in specific sectors. This professional management can be advantageous for investors who lack the expertise or time to select individual stocks within a sector. 

Fund managers conduct in-depth research and analysis to identify promising companies within the sector, aiming to maximise investor returns. Their expertise and strategic decision-making aim to navigate the cyclical nature of sectors, identifying opportunities for growth and managing risks effectively.

Long-Term Investment Potential

Sectoral funds can align with long-term financial goals, such as retirement planning, by focusing on sectors expected to perform well over an extended period. Investors can potentially achieve inflation-beating returns by carefully selecting sectors with strong growth prospects through thorough analysis and research. 

This long-term perspective may allow investors to ride through the sector’s ups and downs, capturing growth opportunities and contributing to overall portfolio growth over time.

Risks Involved While Investing in Sectoral Mutual Funds

Sectoral funds primarily invest in equity instruments, posing specific risks:

• Concentration Risk: These funds are heavily invested in one sector, making them highly concentrated and the riskiest type of mutual fund.
• Liquidity Risk: Fund managers may struggle to sell securities during market downturns, potentially leading to losses.
• Volatility Risk: Fluctuations in the sector directly impact fund performance, potentially amplifying returns or losses based on sector performance.
• Cyclical Nature: Sectoral funds are vulnerable to economic cycles affecting specific industries, influencing fund performance accordingly.
• Limited Diversification: Focusing on a single industry limits diversification, potentially increasing losses during economic shifts impacting that sector.

How to Choose the Best Sectoral Mutual Funds for Investing?

When selecting sectoral mutual funds for your investment portfolio, active consideration of key factors is paramount. 

• Determining Financial Objectives: Investors can begin this journey of choosing sectoral mutual funds by identifying their financial objectives and risk tolerance. This would help them sort out which sectors interest them in terms of their theme and risk factors. 
• Assessing Performance History: Investors can assess the performance history of sectoral funds within their preferred industry by focusing on consistency and growth trends. This will help investors gather a greater understanding of the funds they are investing in.
• Conducting In-depth Research into the Sectors: Conducting in-depth research into the specific sectors you are interested in can prove to be helpful as well. 
• Analysing Market Conditions: Investors can analyse market conditions, regulatory environments, and global trends influencing those sectors. This can help in getting a more wholesome understanding of the potential pitfalls and market downturns, especially in terms of the sector that interests you. 
• Professional Management: Investors can look for funds managed by experienced professionals with a track record of navigating the nuances of specialised markets. Although a hightory of successful management does not entail future returns, it can prove to be more profitable to look for professionally managed sectoral funds. 
• Diversifying Investment Portfolio: Diversification remains crucial even within sectoral investments. Investors can opt for funds that spread assets across various companies within the chosen sector to potentially mitigate risk factors. 

Taxation on Sectoral Mutual Funds as per the Union Budget 2024-25

Sectoral mutual funds are taxed according to their asset allocation and holding period. Being aware of these tax implications is essential for making informed financial decisions. The Union Budget for 2024-25 has made significant changes to the taxation on equity mutual funds. Here we have listed these changes, along with the revised tax rates for equity mutual funds:

Short Term Capital Gains Tax

Any gains made when holding equity mutual funds for less than 12 months are considered short-term capital gains. The Union Budget 2024-25 increased the tax rate on these gains to 20%. The STCG tax rate was previously 15%. 

Long Term Capital Gains Tax

For equity mutual funds held for over a year, gains are classified as long-term capital gains. The new budget introduces these key changes:

• Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
• Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
• Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.

Indexation was a method that allowed investors to adjust the purchase price of assets for inflation. This adjustment reduced taxable profits when selling assets like property or gold. Previously, these long-term capital gains were taxed at 20%. The new rule imposes a flat 12.5% tax on all long-term capital gains but eliminates any indexation benefits.

Capital Gains Tax	Holding Period	Old Rate	New Rate
Short-Term Capital Gains (STCG)	Less than 12 months	15%	20%
Long-Term Capital Gains (LTCG)	More than 12 months	10%	12.50%

Factors to Consider Before Investing in Sectoral Mutual Funds 

Here are a few key factors to consider before investing in sectoral mutual funds: 

• Sector Concentration and Risk: Sectoral funds focus exclusively on specific sectors, which can lead to high investment risk due to a lack of diversification. Unlike diversified equity funds, which spread investments across sectors, sectoral funds may suffer if the chosen sector performs poorly.
• Investment Goals and Duration: Investors should have clear long-term goals when investing in sectoral funds, such as funding education or retirement planning. Considering the cyclical nature of sector performance, these funds typically require a minimum investment horizon of at least five years to achieve optimal returns.
• Expense Ratio: Understanding the expense ratio is crucial before investing. Asset management companies charge fees for managing sectoral funds, which impact overall investment returns. Knowing these costs may help in accurately assessing potential returns.
• Portfolio Exposure: Sectoral funds should be part of a well-diversified portfolio, with exposure limited to 5-10% of total investments. Given their higher risk profile, excessive weighting in these funds can increase portfolio volatility.
• Sector Performance Analysis: Analysing current and historical sector performance is very important for investors. Sector trends are often cyclical and can affect fund performance. A regular analysis of sectoral trends and company performance can provide insights into potential future returns.
• Investment Duration: Sectoral funds may require a long-term investment horizon due to their volatility and sector-specific focus. Investors should be prepared for market fluctuations and can consider holding these funds for extended periods..
• Risk Management: Setting stop-loss limits around 15-20%  can help mitigate losses and strategically exit underperforming sectors.
• Performance Evaluation: While past returns do not guarantee future performance, analysing historical fund performance across different market cycles may provide valuable insights. Evaluating sector prospects and potential opportunities can aid in making informed investment decisions.

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 capitalise on sector-specific growth opportunities. As the investment landscape continually evolves, sectoral funds’ adaptability and proactive nature stand out as valuable tools in pursuing financial goals.

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

Frequently Asked Questions on Sectoral Mutual Funds

Most Popular Mutual Funds:

As an investor to have a diversified mutual funds portfolio, you might also like to know more about these different types of funds for investing –

Large Cap Mutual Funds	Mutual Fund Bulk Deals	SBI Mutual Funds for SIP	SBI MF for Long Term SIP	Sectoral Mutual Funds	Short Term Mutual Funds	Tax Saving Mutual Funds	Mid Cap Mutual Funds
Small Cap Mutual Funds	Pharma Mutual Funds	80c Mutual Funds	1 Year Mutual Funds	International Mutual Funds	Tata Mutual Funds	Mutual Fund Portfolio	Best Mutual Funds
High Risk Mutual Funds	Micro Cap Mutual Funds	AMCs	MNC Mutual Funds	Equity Mutual Funds	Overnight Funds	ICICI Pru Mutual Funds	HDFC Mutual Funds
Best Investment Plans	Fixed Income Mutual Funds	Penny Stock Mutual Funds	Retirement Mutual Funds	Floater Rate Funds	Aggressive Hybrid Funds	Multi Asset Allocation Funds	Children’s Funds
Medium Duration Funds	Debt Funds	Corporate Bonds	Ultra Short Term Funds	Value Funds	Contra Funds	Focused Funds	Funds of Funds
Money Market Funds	Arbitrage Funds	Gold Mutual Funds	Books on Mutual Funds	Best Mutual Funds for SIP	SBI Mutual Funds	Low Risk Mutual Funds	Dividend Paying Funds
Long Term Mutual Funds	Banking Mutual Funds	Gilt Funds	Mutual Funds for 10 Years	Monthly Income Mutual Funds	Nifty 50 Index Funds	Lumpsum Investment Funds	Blue Chip Mutual Funds
Low Expense Ratio Funds