What is the difference between sector funds, thematic funds and opportunity funds What is the investment strategy adopted by each of these categories. Please give a list of sector funds, thematic funds and opportunity funds. How can an investor use them best?
-Rajkumar Darira
Sector funds invest only in a particular sector of the economy. For instance, a banking sector fund will invest in shares of banking companies, a gold sector fund will invest in shares of gold-related companies. SBI FMCG, SBI Pharma, ICICI Prudential Banking and Financial Services fund and DSPBR Technology.com are examples of few sectoral funds.
Thematic funds align investments to a particular theme. For example, an infrastructure thematic fund can invest in share of companies dealing with infrastructure construction, cement, steel, power etc. The investment is thus broader than sectoral fund, but narrower than diversified fund. Canara Robeco Infrastructure is a thematic fund.
Ideally, every actively managed equity fund is an Opportunity fund. But specifically such funds can take a big bet on a stock or sector as part of their stated objective. They don't explicitly follow a particular sector, theme or market-cap. They can invest wherever the fund manager sees an opportunity, sell a holding anytime and aggressively churn a portfolio. However, since few years most such funds look like generic diversified fund. Following Value Research's portfolio based fund classification most opportunity funds are getting classified as large- and mid-cap funds. DSPBR Opportunities, HDFC Mid-cap Opportunities and UTI Opportunities are few funds in this category.
We don't think either of these funds play any meaningful role in an individual's portfolio. Also, if you have a diversified equity portfolio, through ownership of funds or stocks, you can do without any sector fund. You can consider investing in sectoral funds in case you want to emphasize any specific sector or if your fund has no exposure to the sector.
This article was originally published on May 07, 2013.
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