Perils Of Sector Funds
Sector fund investments are volatile & investors should tread into them with caution…
By Research Desk | May 4, 2011
I will like to start a monthly SIP of Rs 2,000 pm in mutual funds oriented towards biotech sector for the long term. Please suggest the available funds.
- Yuva Raj
There is no specific fund that focuses on the biotech sector. However, there exists funds that focus on the pharma sector such as Franklin Pharma, Magnum Pharma, Reliance Pharma and UTI Pharma & Healthcare that you can consider investing instead.
But remember, when you invest in a sector fund, you are trying to ride market cycles. These funds are essentially for investors who have a high risk appetite and given the growth potential of certain sectors in the market, investors may take a small exposure to these funds. While their return potential is high, so is their potential risk. If you get the timing of entry or exit wrong, you could end up performing worse than an investor in a diversified equity fund.
It is on account of these risks that sector funds are not for investors who are new to investing. These funds should never be the first funds that you add to your portfolio. They are for seasoned investors who have a diversified portfolio and are willing to allocate a small portion to these funds in order to augment their returns. Such investors should be aware of the risks posed by these funds. They should actively manage their portfolios, track the sector’s performance, and take decisions on entry and exit. In the process, they must be willing to take on more volatility in returns (than in the case of diversified equity funds). Thus, these funds live up to the adage: high risk and high returns. Moreover, long-term investment horizon may not be suited for sector funds because sectors move in cycles and a specific sector does not have long-term prospect as much as a large-cap fund does.