Should you invest in sectoral funds? Here’s how they have performed in last one year.

While Investing in Mutual Funds scheme one has to be careful in choosing the type of Fund so as to derive the maximum  benefit in the medium and long term basis.

Sectoral or thematic mutual funds often witness more traction because of the positive short-term returns they offer. In the last one year, while some of the funds have given decent returns, others could not do well.

According to an analyst, while investing in sectoral funds, it’s important for an investor to understand that themes/sectors are cyclical in nature.

While investing in a sector fund could potentially give investors a good return on their investment, timing the downturns could prove to be tricky. Sectors that are the flavour of the season may go out of vogue when there’s a downturn in the sector. Themes could play out eventually, depending on what the story is. Whilst these funds offer a great opportunity to take sector bets, they should only be invested into, by investors who have the wherewithal to take a call on sectors and have the capability.

It’s also important to take into consideration the higher risk that comes with investing in such funds. “A savvy investor who is able to constantly monitor the markets and his/her portfolios on an ongoing basis could do well by investing in such funds. However, it’s important to take a measured approach while investing.

So, a better approach for investors who prefer consistent long-term returns with lower risk would be diversifying a portfolio across market capitalisations, where managers will take graded sector overweight/underweight positions.

We’ve always advised long-term investing over a performance chasing behaviour and our research supports this approach. Investing purely basis recent short-term performance can be counterproductive to an investor’s portfolio.

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