Investors flock towards funds returning 135-145%

Sectoral and thematic funds have been on top of the return charts in the last one year. The higher returns have resulted in a lot of traction in these schemes. Mutual fund advisors have always maintained that retail investors should not go overboard on sectoral and thematic funds because of the concentration risk involved with the portfolios. Data from AMFI shows that in the month of June, sectoral and thematic funds have garnered high inflows. "We are witnessing increasing interest from investors in the sectoral funds space, largely into Technology & Healthcare funds. Stocks from both the sectors have had a great run up in the post Covid market rally. Large part of the flows are towards Technology & Healthcare funds," says Kaustubh Belapurkar, Director – Manager Research, Morningstar India. In the last one year, among the top 10 categories- 6 are sectoral or thematic fund categories. Here is a look at the toppers in the last one year: Fund category1-year average return (%)Small Cap106.96Sectoral-Technology104.74Thematic-Energy91.90 Mid Cap79.00Sectoral-Infrastructure75.75Value Oriented70.21Sectoral-Banking68.01Among the above categories, some sectoral and thematic funds have offered returns as high as 145% in one year. IT sector funds, pharma funds, banking sector funds have given eye-popping returns and have been attracting huge inflows. Financial planners say that investors have been diversifying into sector funds to push portfolio returns. However, they also suggest that investors should not have a higher allocation to these schemes because of the cyclical nature. "Most of the sectoral funds are cyclical in nature and they also have concentrated portfolio, hence the risk on these funds is higher compared to diversified funds. Also, if the fund manager of equity diversified fund see more opportunity in the sector, they can increase their allocation to take advantage of growth prospects of the sector," says Harshad Chetanwala, Founder, My Wealth Growth, Mumbai. Schemes that have offered exceptional returns include- Quant Infrastructure- 145.17%, ICICI Pru Technology - 135.89%, ABSL Digital India- 115.67%, DSP Natural Rsrcs and New Energy -102.67% and many more. "Sector funds are suitable for investors who are looking to express a specific sector view and are in a position to take a fundamental view on the same. It is important to acknowledge that markets go through sector rotation. Technology and healthcare stocks have been the highest gainers in the post Covid rally. Investors should not invest in these sectors purely because they have done well in the recent history. As articulated earlier different sectors come to the fore at different points of time and by investing in sectoral funds purely basis past returns can be counterproductive as more often that not a large part of the rally would have already been missed by investors," says Kaustubh Belapurkar.

from Economic Times https://bit.ly/3cN9WJz
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