Skip to main content

Should you Invest in Sector Mutual Funds ?

Tax Saving Mutual Funds Online

Current open Infra Bond Application form

 

Banking sector funds as a category topped the performance charts in the past three months with 23.62% return. But the same category of funds is the worst performer if you look at the one-year performance – the category lost 14.58% during the period. The story is same with infrastructure funds, too: they have gained 15.32% in the past three months, but lost 12.75% over the past one year. Similarly, most sectoral funds with higher exposure to the power sector have outperformed other funds by a wide margin in the last quarter of 2007 (calendar year), but they lost heavily in the first quarter of CY2008, as the market corrected. As you can see, the data — sourced from Value Research, a mutual fund tracking firm — presents a confusing picture. Especially for investors who are in search of sectoral funds to beat the broader market. But that is the hallmark of sectoral funds, which can be cyclical or extremely sensitive to even a minute change in their respective business environment.

Rationale

Alpha – the extra returns over the overall market returns – is a dream for many investors. And sector dedicated funds sometime do deliver on this count. According to Morningstar India, another mutual fund tracking firm, if you had invested in FMCG funds, you would have earned an average 10.57% return in CY2011. On the other hand, if you had invested in large-cap oriented equity schemes, you would have lost 24.46% during the same period. A look at the accompanying table will tell you that sectoral funds have occupied slots for top three performing ranks in the past seven years, except for a stray year of CY2009, when small- and mid-cap diversified funds as a category occupied the second rank with 95.36% returns. In short, if you expect a sector to grow faster than the economy, you can consider investing in a fund dedicated to the sector. Banking sector should benefit from the secular growth of the Indian economy in the long term, while recent the Budget provisions should be beneficial for the infrastructure and power sectors. Investors can consider investing in funds dedicated to these sectors.


However, a higher return is not the only reason why investors should look at a sector fund. A sector fund can be used sparingly in times of volatile market conditions to make your portfolio defensive. You can invest in a healthcare fund or an FMCG fund for this purpose, an investment advisory and training portal. FMCG and healthcare funds as a category have shown lower volatility over the long term compared to diversified equity funds. Over five years, healthcare funds and FMCG funds have recorded lower standard deviation of 27.63 and 22.14, respectively; compared to large cap funds (29.78) and mid- & small-cap funds (32.49).

Be Mindful About The Risks

A sector fund leaves the fund manager with limited options, as he has a mandate to invest only within the sector. If the sector enters a bad phase, the fund manager can do very little. A look at the performance of these schemes (See Table) also underlines the fact that you cannot simply invest in the 'best performing sector fund' of last year and sit quietly for it to deliver. To your surprise, you may find that the same sector is not in the top league anymore. That is why it is extremely important that you should have a clear view of the sector. Also, never invest too much in a sector fund as it increases risk. For example, if a professional employed in an information technology firm, with stock options of his company, invests in a technology sector fund thinking that it is a high growth sector, he may be sitting on a huge risk. Here most of his cash flows, fortune and investment are tied to the future of IT sector and any adverse development in that sector can have a devastating impact on his finances. If you are convinced with the growth prospects of a sector, you can invest in that sector's funds; but restrict your exposure to these funds to 10-15% of your equity portfolio.

How To Choose One

Short-term performance may give a distorted picture to investors due to high volatility, especially in the case of sectoral funds, where the stock universe is rather small. Always look at the long-term performance, say, more than three years, to arrive at an informed decision. Long-term track record is just one parameter to start with. Another important factor you have to look at is the portfolio composition. If you are considering a healthcare fund while building a defensive portfolio, a high MNC exposure may be better than a fund portfolio comprising Indian mid and small-cap companies during volatile market conditions. If you are in a volatile market such as the one we are in now, probably a large-cap oriented sector fund may be better to start with.

---------------------------------------------

Invest in Tax Saving Mutual Funds ( ELSS Mutual Funds ) to upto Rs 1 lakh and Save tax under Section 80C.

Invest Tax Saving Mutual Funds Online

Tax Saving Mutual Funds Online

These links can be used to Purchase Mutual Funds Online that are regular also (Investment, non-tax saving)

Download Tax Saving Mutual Fund Application Forms from all AMCs

Download Tax Saving Mutual Fund Applications

These Application Forms can be used for buying regular mutual funds also

Some of the best Tax Saving Mutual Funds available ( ELSS Mutual Funds )

  1. HDFC TaxSaver
  2. ICICI Prudential Tax Plan
  3. DSP BlackRock Tax Saver Fund
  4. Birla Sun Life Tax Relief '96
  5. Reliance Tax Saver (ELSS) Fund
  6. IDFC Tax Advantage (ELSS) Fund
  7. SBI Magnum Tax Gain Scheme 1993
  8. Sundaram Tax Saver

---------------------------------------------

Application form for Tax Saving Infrastructure Bond and more information

Current open Infra Bond Application form

Submit filled up application Collection canter near you

Popular posts from this blog

Mutual Fund Exit Load Changes

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Mutual Fund Exit Load Changes AMCs don't communicate about any change in exit load directly with investors, but do update on their website   The exit load applicable to your investments is the load which existed at the time when you invested in the particular fund. Any subsequent changes in the exit load will not be applicable to your investments.   However, Asset Management Companies ( AMCs ) periodically publish addendums in the newspapers, which state any change in exit loads of specific schemes managed by them. Such changes are also posted on their websites. However, a direct communication to an investor is not made, considering the costs involved in doing so. In their own interests, investors should not only track the performance of the funds they i...

Birla Sun Life Mutual Fund Launches Birla Sun Life NIFTY ETF

Birla Sun Life has launched a new fund namely, Birla Sun Life Nifty ETF, an open ended exchange traded fund. The new fund will be open for subscription from 4th July to 18th July 2011, at an offer price of Rs 10 per unit. The investment objective of the scheme is to generate returns that closely correspond to the total returns of securities as represented by S&P CNX Nifty, subject to tracking errors. No exit load will be charged under the scheme. The performance of the scheme will be benchmarked against S&P CNX Nifty and will be managed by Satyabrata Mohanty.   -----------------------------------------------------------------   Also, know how to buy mutual funds online:   1) DSP BlackRock Mutual Funds: http://prajnacapital.blogspot.com/2011/05/buying-dsp-blackrock-mutual-funds.html   2) Reliance Mutual Funds: http://prajnacapital.blogspot.com/2011/06/buying-reliance-mutual-funds-online.html   3) Birla Sunlife Mutual Funds: http://prajnacapital.blogspot.com/2011/...

Atal Pension Yojana contribution Tax Benefit for spouse

Contributions to Atal Pension Yojana (APY) are eligible for the same tax benefits as the NPS. This means that the contributions can be claimed under Section 80CCD (1B). The current limit for Section 80CCD (1B) is   Rs   50,000, over and above the   Rs   1.5 lakh limit under Section 80C. Section 80 CCD (1) is a different one, meant to cover employers' contribution towards NPS . You cannot get tax benefit by investing in the name of your spouse under Section 80 CCD . ------------------------------ ----------------- Invest Rs 1,50,000 and Save Tax under Section 80C. Get Great Returns by Investing in Best Performing ELSS Mutual Funds Top 10 Tax Saver Mutual Funds to invest in India for 2016 Best 10 ELSS Mutual Funds in India for 2016 1. BNP Paribas Long Term Equity Fund 2. Axis Tax Saver Fund 3. Religare Tax Plan 4. DSP BlackRock Tax Saver Fund 5. Franklin India TaxShield 6. ICICI Prudential Long Term Equity Fund 7. IDFC Tax Advantage (ELSS) Fund 8. Birla Sun Life Tax Relief 96 9. ...

Short-Term Investment Options in Mutual Funds

Mutual funds offer liquid funds and ultra short term funds in the debt category, which are suitable for short investment periods. Ultra short-term funds were earlier known as liquid plus funds. Liquid funds invest in money market instruments with a maturity of 91 days or less. However, there are no such restrictions for ultra short-term funds. Who should invest in these? These are open-ended schemes. Investors with a short investment horizon or with surplus cash and low risk appetite should look at these. These could include corporate as well as retail investors. Those interested in staying invested for less than 15 days can opt for liquid funds. Retail investors who want to remain invested for two-four months, can look at ultra short-term funds. The short duration for both liquid and ultra short-term funds shields them from any interest rate volatility.   What kind of returns do they offer? In terms of an investment period less than 15 days, these funds are comparable to a ba...

Mutual Fund Reivew: Birla Sun Life Asset Allocation Conservative

Birla Sun Life Asset Allocation Conservative has numbers on its side to prove its credibility… Don't be surprised to find this Fund of Funds ( FoF ) in our recommendations. It has earned its place. And despite the difference in the structure of the product, there is no arguing with the numbers.   Of the total 6 years of its existence, the fund has been among the top 10 funds in its category in four of them. Last year it put up an average show and the only year it underperformed its peers was in 2008.   One aspect to look at when investing in an FoF is the expense ratio. The expense ratio of an FoF is capped at a lower limit of 0.75 per cent (2.50% for an actively managed fund). However, the FoF not only has its own expense (though lower) but even the expense ratio of the fund it is investing into. Fortunately, the fund manager takes that into account. "Expense is one of the important criteria used for fund selection and is the main reason for our investment in BSL Ind...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now