What are sectoral funds? Do they suit you?

In recent times, you might have heard that consumption story is a good bet, invest in these funds, pharma funds seems to be promising and what not. But what are these sectoral funds? And do they suit every investor?

Well no, these funds are highly risky and are suitable for the investors who have a high-risk appetite. Sectoral funds are funds which invest in the securities or companies which are engaged in a similar sector. That is these mutual fund schemes tend to invest in the particular theme or sector. Portfolio of these funds is highly concentrated towards the single sector.

In India, mutual fund houses offer sector funds for FMCG, pharma, IT, auto and infrastructure sector. Sometimes these funds help investors tide volatility when the specific sectors are in a boom, but still, the portfolio is the king while selecting these schemes.

Investors should always remember that these funds tend to be more volatile than the diversified funds as they commonly have concentrated portfolios. The only advantage these funds offer is that the decision about stock selection and the timing of entry and exit from stocks is left with the fund manager. So while investing in sectoral funds investors, one should first clarify its investment objectives and should not allocate more assets towards these funds if you are a risk-averse investor. These funds are not the best option for conservative investors as these are high risk, high return funds.