Technology sector funds have been giving eye-opening returns over the past few years. The Tata Digital India Fund is returning to a high of 65 percent a year. The IT industry in India is doing well with growth in income by IT giants. Depreciation rupees also increase the fortunes of the technology sector.
The top five category funds have achieved unprecedented returns in a year, ranging from 37 percent to 65 percent. The Tata Digital India Fund with a return of 65.18% in a year, followed by ICICI Prudential Technology Fund (51.28%), Aditya Birla Sun Life Digital India Fund (51.07%) in the same time frame.
Many fund managers feel that the outlook for the IT sector looks good, and retail investors shouldn’t invest heavily in technology funds such as sectoral funds. Mutual fund advisors believe that retail investors should not invest in sector funds unless they are well versed in the sector where they invest.
According to the financial advisor, IT sector funds are doing well at this stage. All industries have
stages where extremes are hit. But it would be best if you did not base your investment on your short term returns. Invest in sector funds only when your portfolio needs them, and if you have a risk appetite. You should not have more than 5-10% of the sector fund in your portfolio.
Informed retail investors may be exposed to sector funds if they are adequately aware of the functioning of the retail sector and are willing to invest for the long term. Keeping things in mind, sector funds would be a great tool to diversify the portfolio of mutual funds. However, a small portion of your total portfolio should be invested in sector funds.
Otherwise, if the sector goes through a downward cycle, it will adversely affect overall portfolio returns. It would help if you always kept in mind that sectors always go through cycles.
Why should you invest in this scheme?
It is a sector fund focused on the IT sector. In the last year, IT has enjoyed reviving one of the best-performing segments in the market. It is partly due to the dollar earnings of IT companies and the rupee falling against the dollar, raising the rupee value of their revenue.
Sector funds are generally quite risky, so buy only when you are very confident of the prospects of the IT sector and are ready to take the risk involved. Other funds, such as Aditya Birla Sun Life New Millennium, ICICI Prudential Technology, and Franklin Technology Fund, may also be considered.
It is an industry fund, and will only invest in technology stocks. Please understand clearly that if the technology sector is not doing well tomorrow, then the fund manager cannot decide to investment banking stocks in one morning. In most cases, sector stocks are better off as short-term opportunities. Second, you should look at schemes that have a definite history, and it is just over two years old.