Should you chase sectoral trends?

Meet Akash, a 40-year-old IT professional who is eager to dip his toes into the world of equities. Having little experience in the financial domain, Akash has decided to explore mutual funds as his entry point. As an avid reader of newspapers, he's frequently come across striking headlines such as, 'BSE PSU Index has earned over 89 per cent returns in the past year!' Naturally, this piqued his curiosity, especially with the recent launch of 84 sectoral and thematic funds in the past year. Akash is now tempted to chase these impressive returns by investing in sectoral or thematic funds, hoping to ride the wave of high performance. However, before Akash dives headfirst into the advice of investment gurus and makes hasty decisions, it's important to pause and consider why sometimes doing nothing is a smarter strategy than reacting impulsively to short-term trends. Investment strategies Akash is facing a dilemma between picking a diversified fund and a sectoral fund. He reached out to us to put this worry to rest. So, we analysed three investing strategies that we believe exist in the minds of not just Akash but many investors. They are: Stick to the broad market: Invest Rs 1 lakh annually in the BSE 500 Index on the first working day of the year. The BSE 500 is a broad-market index that offers a diversified expo

This article was originally published on September 17, 2024.