Sector funds offering paltry returns? Here is what you should do
Know your sector schemes?
Sector schemes, as the name denotes, invest in a specific sector or theme. Examples of sector schemes are pharma funds, technology or IT funds, infrastructure funds, etc. So, when you are speaking about the poor show of your sector schemes, you should also take some time to check the performance of the entire scheme. This will help you to find out whether the poor show is confined to your scheme or it is applicable to the entire sector or theme.
Yes, some themes are faring badly
Pharma sector funds are at the bottom of the performance chart. The pharma category is offering negative returns (around -3%). In other words, the category lost money. Similarly, infrastructure fund and IT fund categories are offering around 3-4% currently.
Are you comparing right?
Many investors are concerned about the performance of their sector schemes mainly because of the outperformance of other mutual fund categories. When they see that large cap mutual funds are offering 12% returns or long duration schemes are giving 15%, or banking sector funds are offering 17% returns, the underperformance of their sector schemes are magnified in their mind.
Why did you bet on sector schemes?
Many mutual fund advisors are asking investors to find out why they have invested in these schemes in the first place. Obviously, they wanted better returns as they believed the sector can outperform the broader market. However, they haven’t included the possibility that sector funds can also severely underperform as they go up and down based on the economic environment.
What should you do?
Sector funds are typically recommended to 'sophisticated investors' with intimate knowledge about a specific sector or theme or as a diversification tool to high net worth individuals with deep pockets. Do you have deep knowledge about the sector? Can you get in and out of the scheme at the right time? If the answer to these questions is a big No, you should not be investing in sector schemes.
Should I let go of the extra returns?
Not really. Invest in a diversified multi cap scheme. If a sector or theme is doing very well in the market, a multi cap mutual fund manager will surely have a decent exposure to it. This is the right way to take some exposure to sectors and themes as the fund manager would manage the exit and entry in these sectors or themes for you.