Sectoral funds are the high-performance racing cars of the mutual fund world — exhilarating when conditions are right, catastrophically dangerous when they're not. Understanding when to use them separates the sophisticated investor from the reckless speculator.
Every sector has cycles driven by economic conditions, policy changes, global factors, and valuations. Pharma outperformed during COVID. IT outperformed during the digital boom of 2020-21. Banking underperforms during high NPA cycles. The challenge is identifying where we are in the cycle.
Sector is under-owned and valuations are below historical averages. Strong structural tailwinds (policy support, demographic trends, global supply chain shifts). You have genuine domain knowledge in the sector.
Your fund is featured as a top performer in mainstream media. Everyone around you is talking about investing in this sector. Valuations are at 5-10 year highs. New NFOs in the sector are launching weekly.
No single sector fund should exceed 15-20% of your total portfolio. Concentration risk in a single sector can permanently impair a portfolio if the sector faces structural disruption (think Telecom in 2017-18 post-Jio).
Found this helpful? Explore more articles.
All Articles →