Best Sector Mutual Funds

Sector funds are relatively riskier than diversified funds as these invest in companies in a particular area or theme like banking, PSU, Infra, Rural, etc. These funds are most volatile due to holdings in a sector. PSU funds primarily invest in stocks of Public Sector Units like NTPC, HDFC, Pharma, etc. It has returns that are taxed at 15% if sold before one year, post this period a 10% tax is applicable on the gains

To summarize it in a better way, these funds are theme oriented and invest only in a particular sector. These are best when there are high chances that a particular area is going to get great gains in the coming year. For example, the banking sector is performing well on the market these days and hence providing good returns to the investors of banking sector funds.

Sector funds is a category of equity mutual funds that invest in only a specific sector. For example, a banking sector fund will invest in only shares of banking companies. Gold sector fund will invest in only shares of gold- related companies.

In these type of funds diversification is only in that particular sector and not in the entire market. As a result of this the returns in these funds depend on the performance of that sector in particular. While these funds may give higher returns than diversified equity funds but the risk in these funds is also on the higher side, if the performance of that sector goes down because of any reasons like political, economical, social, technological, legal etc these funds are hit the worst vis-à-vis the overall stock markets.

These funds are usually benchmarked to the index of their particular sector like the banking sector fund is benchmarked to NIFTY Bank Index, auto sector funds are usually benchmarked to NIFTY Auto Index and so on.

Investment in these funds should range from 5% to 15% of the total portfolio of an investor because of their risky traits. Also investments in these funds should be timed for entry and exit as these funds are highly cyclical in nature just like the sector that they are focussing on. An investor must keep a watch on the performance and look for any indicators to know when to exit the fund.

Sector funds should not be altogether avoided if someone has a higher risk appetite because they can really enhance returns for the overall portfolio if the call goes right.

Purpose: Investment in these funds could give huge return if an investor is aware of the market trend in each area.

Top 10 Sector Mutual Funds

Fund NameCategoryRisk1Y ReturnsRatingFund Size(in Cr)
DSP BlackRock Natural Resources & New Energy FundEquityHigh-8.9%5star393
Reliance Pharma FundEquity High15.8%5star2,752
UTI Transportation and Logistics FundEquityHigh-12.6%5star1,398
Franklin Build India FundEquityHigh-7.0%5star1,091
SBI Banking & Financial Services FundEquityHigh8.4%5star493
Aditya Birla Sun Life India GenNext FundEquityHigh2.4%5star759
ICICI Prudential Technology FundEquityHigh29.3%5star476
L&T Infrastructure FundEquityHigh-10.5%5star1,876
Tata India Consumer FundEquityHigh5.9%4star1,334
Tata Digital India FundEquityHigh35.5%4star370
Mirae Asset Great Consumer FundEquityHigh5.0%4star499
UTI Banking & Financial Services FundEquityModerate5.5%4star790
UTI Banking & Financial Services FundEquityHigh-6.4%4star611
UTI Infrastructure FundEquityHigh-11.9%4star1,264
Aditya Birla Sun Life Banking and Financial Services FundEquityHigh-4.2%4star1,446
View All Top 10 Sector Mutual Funds

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Now let us jump and check about these top 10 mutual fund schemes.

DSP BlackRock Natural Resources & New Energy Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 25.6% annualized returns in the last 3 years. In the last 1 year, it gave -8.9% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided -8.9% returns in the last 1 year. Groww rated this fund as 5 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Rohit Singhania, Jay Kothari

Launch Date2 Jan 2013
Min Investment Amt1,000
Groww Rating5star
AUM393Cr
1Y Returns-8.9%

Reliance Pharma Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 2.73% annualized returns in the last 3 years. In the last 1 year, it gave 15.76% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided 15.76% returns in the last 1 year. Groww rated this fund as 5 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Sailesh Raj Bhan

Launch Date31 Dec 2012
Min Investment Amt5,000
Groww Rating5star
AUM2,752Cr
1Y Returns15.8%

UTI Transportation and Logistics Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 6.72% annualized returns in the last 3 years. In the last 1 year, it gave -12.63% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided -12.63% returns in the last 1 year. Groww rated this fund as 5 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Sachin Trivedi

Launch Date31 Dec 2012
Min Investment Amt5,000
Groww Rating5star
AUM1,398Cr
1Y Returns-12.6%

Franklin Build India Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 12.4% annualized returns in the last 3 years. In the last 1 year, it gave -7.02% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided -7.02% returns in the last 1 year. Groww rated this fund as 5 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Anand Radhakrishnan, Roshi Jain, Srikesh Nair

Launch Date31 Dec 2012
Min Investment Amt5,000
Groww Rating5star
AUM1,091Cr
1Y Returns-7.0%

SBI Banking & Financial Services Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 21.18% annualized returns in the last 3 years. In the last 1 year, it gave 8.42% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided 8.42% returns in the last 1 year. Groww rated this fund as 5 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Sohini Andani

Launch Date25 Feb 2015
Min Investment Amt5,000
Groww Rating5star
AUM493Cr
1Y Returns8.4%

Aditya Birla Sun Life India GenNext Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 15.58% annualized returns in the last 3 years. In the last 1 year, it gave 2.43% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided 2.43% returns in the last 1 year. Groww rated this fund as 5 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Anil Shah, Chanchal Khandelwal

Launch Date31 Dec 2012
Min Investment Amt1,000
Groww Rating5star
AUM759Cr
1Y Returns2.4%

ICICI Prudential Technology Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 12.45% annualized returns in the last 3 years. In the last 1 year, it gave 29.33% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided 29.33% returns in the last 1 year. Groww rated this fund as 5 Star. This is one of the best Equity mutual fund in India.

Fund Manager: S Naren, Ashwin Jain

Launch Date31 Dec 2012
Min Investment Amt5,000
Groww Rating5star
AUM476Cr
1Y Returns29.3%

L&T Infrastructure Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 16.23% annualized returns in the last 3 years. In the last 1 year, it gave -10.54% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided -10.54% returns in the last 1 year. Groww rated this fund as 5 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Soumendra Nath Lahiri

Launch Date31 Dec 2012
Min Investment Amt5,000
Groww Rating5star
AUM1,876Cr
1Y Returns-10.5%

Tata India Consumer Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided -100% annualized returns in the last 3 years. In the last 1 year, it gave 5.88% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided 5.88% returns in the last 1 year. Groww rated this fund as 4 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Rupesh Patel, Sonam Udasi

Launch Date27 Dec 2015
Min Investment Amt5,000
Groww Rating4star
AUM1,334Cr
1Y Returns5.9%

Tata Digital India Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided -100% annualized returns in the last 3 years. In the last 1 year, it gave 35.46% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided 35.46% returns in the last 1 year. Groww rated this fund as 4 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Danesh Mistry

Launch Date27 Dec 2015
Min Investment Amt5,000
Groww Rating4star
AUM370Cr
1Y Returns35.5%

Mirae Asset Great Consumer Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 16.62% annualized returns in the last 3 years. In the last 1 year, it gave 5.05% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided 5.05% returns in the last 1 year. Groww rated this fund as 4 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Bharti Sawant, Ankit Jain

Launch Date31 Dec 2012
Min Investment Amt5,000
Groww Rating4star
AUM499Cr
1Y Returns5.0%

UTI Banking & Financial Services Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 8.18% annualized returns in the last 3 years. In the last 1 year, it gave 5.48% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided 5.48% returns in the last 1 year. Groww rated this fund as 4 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Sudhir Agrawal

Launch Date2 Feb 2014
Min Investment Amt5,000
Groww Rating4star
AUM790Cr
1Y Returns5.5%

UTI Banking & Financial Services Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 14.37% annualized returns in the last 3 years. In the last 1 year, it gave -6.42% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided -6.42% returns in the last 1 year. Groww rated this fund as 4 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Sudhir Agrawal

Launch Date31 Dec 2012
Min Investment Amt5,000
Groww Rating4star
AUM611Cr
1Y Returns-6.4%

UTI Infrastructure Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 7.34% annualized returns in the last 3 years. In the last 1 year, it gave -11.89% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided -11.89% returns in the last 1 year. Groww rated this fund as 4 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Sanjay Dongre

Launch Date31 Dec 2012
Min Investment Amt5,000
Groww Rating4star
AUM1,264Cr
1Y Returns-11.9%

Aditya Birla Sun Life Banking and Financial Services Fund - Direct - Growth

Fund Performance: This fund has consistently beaten its benchmark in Sectoral/Thematic segment and provided 18.87% annualized returns in the last 3 years. In the last 1 year, it gave -4.2% returns.

Why to invest: The fund has consistently beaten other funds in same category along with its benchmark and provided -4.2% returns in the last 1 year. Groww rated this fund as 4 Star. This is one of the best Equity mutual fund in India.

Fund Manager: Satyabrata Mohanty, Dhaval Gala

Launch Date13 Dec 2013
Min Investment Amt1,000
Groww Rating4star
AUM1,446Cr
1Y Returns-4.2%

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Why Invest in Sector Funds?

Investors can look to invest in sector funds if they feel that a particular sector is going to perform good in the future. So instead of investing in a particular company belonging to a particular sector, the investor can diversify investment across that sector. These funds are also designed for investors whose portfolio lack exposure to a given sector. It’s all about choosing the right sector and investing in it. The investors thus have a chance to achieve greater returns than otherwise, if he had invested in the broader market. The investor can hedge the greater risk associated with these funds, by setting up a stable and core portfolio and then invest in sector funds. The additional exposure can provide a boost to the overall returns of the portfolio. Also diversified portfolio will be unable to make full use of the upswings in a particular sector. Hence one can invest in sector funds. With greater risk come greater returns, but a wise investor takes calculative risks and thus maximizes his returns.

Risk Associated With Sector Funds

Being exposed to a single sector, the category has limited stocks and the top stocks normally account for greater percentage of the portfolio. Under-performance of one or two portfolio holdings can damage the returns of the entire portfolio even though the broader sector fared well. Also the sector funds do not have the liberty to move away from a particular sector even though it’s not performing well. For example if the technological sector is performing poorly, the tech fund has to stay invested in the sector as it is a mandate. This leaves investors with a struggling fund. On the contrary the fund manager of a diversified portfolio has the flexibility to move away from a sector which is not doing well and shift his investments to a well performing sector.

Fund Selection Strategy for Sector Funds

Fund selection within a particular sector is also important. This is true in case of infrastructure and banking funds. For example some banking fund’s investments are more towards the private sector banking stocks and NBFC’s which have good asset quality and good prospects of profitability. Such funds have known to generate greater profits for the investors as compared to banking funds which concentrate on public sector banks. Investors should also be aware that timing certain sectors of the market is difficult and more risky than as when timing the market as a whole. The narrow focus of the sector funds renders them even more vulnerable to the economic cycles that can affect a specific industry. Thus sector funds are more volatile than as compared to broader funds or diversified portfolios. As sector funds have high risk associated with them, investment in sector funds should never be part of the core strategy of the investor. These should be viewed from a purely tactical viewpoint, that is, they can be used to complement the existing portfolio. At the same time, the investors should not be influenced by past trends of a particular sector and take due diligence while investing. One should proceed with investment only when he/she is absolutely certain about the sector growth prospects. The sector funds performance is also very dependent on the AUM Company. A careful and well managed sector fund of an industry with average performance can outperform a sector fund of a booming industry.

Investment Strategy for Sector Funds

The investment strategy of an individual also plays an important role in sector funds. One can look at SIP while investing but unlike normal funds (diversified), investment in these funds is carried out when the sector is poised to improve. SIP helps in reducing volatility of the fund by cost averaging. When the sector has picked up momentum, an investment through SIP will average out returns and thus reduce profitability. When it comes to sector funds, investments are timed as per the market expectations and growth prospects of the sector. So the strategy should be to invest as per the performance expectations of the sector rather than an SIP. Break down the investments into 4-5 smaller investments at best and then invest by carefully analysing the sector.

Conclusion

Sector funds are most suitable for aggressive investors willing to take risks in order to maximize their profits. Overexposure to a given sector of the market should be avoided as this leads to undue risk and greater volatility. Sector funds, if carefully invested in can help an investor to get good returns on investment. In light of pros and cons of the sector funds, the investor thus needs to keep a close eye on the industry (sector) in which he is investing, and in case of any downturn, exit the sector. In India, the banking sector is in a recovery phase after demonetisation and the NPA crisis. There are positive signals for the banking sector and the other sectors of the economy as a whole. Governments campaigns such as Made in India, Digital India, Housing for all, IBC code etc. has strengthened the growth outlook of various sectors of the economy. This is a good opportunity for the investors to invest in sector funds, but at the same time due diligence is necessary and one should clearly assess the risks before investing. There is a mutual funds for nearly every investment need. If sector funds seem to risky for you, you should see which type of mutual funds suit your investment needs.

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Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.
Past performance is not indicative of future returns. Please consider your specific investment requirements, risk tolerance, investment goal, time frame, risk and reward balance and the cost associated with the investment before choosing a fund, or designing a portfolio that suits your needs.
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