Invest in a sector or thematic fund only when you're well-versed with its theme or sector…
21-Apr-2011 •Research Desk
You keep mentioning sector and thematic funds are risky; yet these funds perform well. How much should one invest in these funds?
- Mukesh Gupta
Investing in a thematic or sector fund is risky because of the thin investment mandate these funds follow. For instance an infrastructure fund typically invests in securities of companies belonging to infrastructure sector or a technology sector fund will invest in companies that are engaged in hardware, computer peripherals, software, telecom and even technology-enabled companies.
This is a good idea to explore if you are well-versed with investing and have a diversified mutual fund portfolio that lacks weightage in a specific sector or theme. Moreover, the idea can also be compelling because of economic and policy decisions that favour the sector or theme such that a fund focusing on it can gain from such developments. Make sure you understand the risk with these funds, and also the fact that exiting these funds is as crucial as entering them and that it may be wise to invest in lump sum in such funds rather than systematically. Sector and thematic allocation should not be high and one should look at not more than 10 per cent allocation to these funds.