I have often come across advice asking investors not to invest in sectoral/thematic fund. The advice is always to rather diversify your portfolio. I agree with the diversification point, but why shouldn't one invest in sector funds? For example, Pharma, banking and FMCG funds have great returns over long term. So what is wrong with it? How should one invest in them? Any insight would be helpful.
- Anmol Agrawal
Sector funds tend to perform differently in different market phases. This is because some sectors tend to perform better than others at any point of time and these favourite sectors keep rotating over a long period. It is not very easy for a regular investor to take a call on the future prospects of a sector and time the entry into the sector scheme and exit from it at the opportune time. That is why we believe that sector funds are meant for investors with knowledge about the sector. Regular investors are better off with diversified equity mutual fund schemes. If a sector is in vogue, a diversified equity scheme would have a meaningful exposure to the sector. This will help the investors to benefit from the upswing in a sector without taking huge bet on the sector. When the fortunes of the sector changes, the fund manager would get out of it and shift his investments to another sector, whereas a sector fund would be forced to stay invested in the sector as per its mandate.
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