Sector Funds are essentially mutual funds that invest in the stocks of companies that operate in a particular sector or industry.
Because these investments are not diversified across sectors, they are exposed to greater risk.
However, these funds are ideal as investment destination if some sectors are expected to outperform the others. If you have good knowledge of a certain sector or industry, you can opt to invest in a sector fund of that industry.
In this article
- Top 10 Sector Funds for 2018
- Extended List: Best Sector Funds
- Types of Sector Funds
Top 10 Sector Funds for 2018
Here are some of the best sector funds to invest in 2018 based on historical data.
1. Aditya Birla Sun Life Banking and Financial Services Fund (Financial Services Sector)
The objective of the scheme is to generate long-term growth of capital by investing in a portfolio of equity and equity-related securities.
Accordingly, the fund diversifies its investment within the banking sector into small cap, mid cap, and large-cap companies, with small-cap investments comprising a minuscule proportion and majority of the funds being invested in large-cap funds.
With one-year trailing returns being 45.25%, this fund is expected to outperform in 2018 as well.
As mentioned earlier, the banking sector is in its recovery phase and sector funds in this area likely to yield decent returns for investors.
2. UTI Transportation and Logistics Fund (Logistics Sector)
This is another fund that is expected to perform well, being one of the beneficiaries of the recently implemented Goods and Services Tax reform.
The fund’s one year trailing return stands at 34.66%.
The fund is most suitable for investment for a longer period of time, as it has significantly outperformed its benchmark in the long run.
UTI Transportation And Logistics Fund diversifies its corpus in industrial manufacturing, services, automobile, etc.
3. L&T Infrastructure Fund (Infrastructure Fund)
L&T infrastructure fund is a mutual fund which aims to generate capital. The fund typically invests in companies engaged in Cement and Cement products, Capital Goods, Banking & Financial Services, Construction and related services, Electrical & electronic components, etc.
India is expected to grow in all these sectors as they have not realized their full potential, and there is a considerable investment by government in this sector. The government has also made structural changes in its policies which have led to improved rank in the ease of doing business ranking by the World Bank.
The trailing return of 58.51%is high, commensurate with high level of risk exposure. At historical rates, an investment of ₹2000 per month would have yielded ₹29,903 within just one year.
4. Sundaram Rural India Fund (Rural India Fund)
The primary investment objective of the scheme is to generate consistent long-term returns by investing predominantly in equity & equity related instruments of companies that are focusing on Rural India.
The fund has outperformed its benchmark across diverse time periods. The fund’s trailing annualized return of 36.02% renders this a good investment option for investors willing to take moderated levels of risk exposure.
Extended List: Best Sector Funds
The above 4 are the best-rated sector funds available in the market. However, there are more top sector funds that cover more sectors. You can explore investing in them below:
This fund aims to invest in companies that in the energy and mining space.
The above sector funds are a part of a larger list of best funds to invest in 2018. See this list here: 30 Best Mutual Funds to Invest in 2018 – Groww 30.
This fund aims to gain capital appreciation by investing in companies that are related to the infrastructure sector.
This fund invests in the financial sector of India. Most mutual funds hold a good percentage of financial sector companies because that is how large this sector is.
This fund is an infrastructure fund too. This sector has immense potential as of now because the Indian government’s development plans.
This fund is a unique sector fund. It aims to invest in companies that stand to gain from the rising disposable income of the youth of India.
This is one of the best performing pharma sector funds in the market as of now.
Types of Sector Funds
- Natural Sector Resources Funds
- Financial Sector Funds
- FMCG Sector Funds
- Pharma Sector Funds
- Logistics Sector Funds
- Transportation Sector Funds
- Tourism Sector Funds, etc.
Choosing the right sector for investment can yield greater returns to the investor than he would earn by investing in the broader market, as it would enable him to exploit upswings in a particular sector.
Fund selection thus becomes one of the most important, and the most difficult, part of investing in Sector Funds.
There are several factors that go into analyzing future prospects of a sector, like asset quality, profitability, timing, Assets Under Management (AUM), etc.
2018 is expected to bear good news for many sectors, especially Banking Sector since it is in the recovery phase, thanks to demonetization and policy changes to improve the NPA crisis.
Though investment in Sector Funds can be made through SIP, the call of investing in these funds is made when growth in thhe sector is expected.
Deferring investment in such sectors to a later date may yield lesser profits to the investor as it increases the cost of acquisition.
Disclaimer: the views expressed here are those of the author. Mutual funds are subject to market risks. Please read the offer document carefully before investing.