By Mr. Arnav Pandya, Certified Financial Planner
Investors seem to have little appetite for sector
mutual funds amid the current bull-run in equity markets. This could be due to
the fact that there is no single sector that is driving markets now.
Emergence of favourites in such a situation is
difficult and therefore investors have to be careful before they select a
specific investment.
Diversified equity mutual funds look like the
best bet in such circumstances. But sector funds should not be brushed aside
because certain class of investors can actually gain from them.
Let’s take a look at those who might benefit from
sector mutual funds.
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| From Value Research |
1. Large portfolio..!
An obvious choice for those with large portfolio
is sector funds. As the size of the portfolio grows, investors will find that
they are taking exposure to similar kind of funds.
One alternative that gives a clear exposure that
is specific in nature is sector funds where there is a clear focus on where the
investment is being made.
One feature of investors with large portfolio is
that they have the ability to take higher risk, Therefore, the sector funds is
an investment to consider as this will not be out of tune with their risk
taking ability.
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| Mr.Arnav Pandya, Certified Financial Planner |
2. Sharp fall..!
There are times when a particular area falls out
of favour with investors & analysts leading to sharp fall often in prices
of stocks in the sector.
This could even be overdone, presenting an
opportunity for a smart investor to make an entry made into this area. If the
investor goes in for a normal diversified fund then they face the problem of
having a diluted exposure because this type of fund will have an exposure to a
wide variety of areas.
In such circumstances, it is the sector fund that
would be the right choice as far as the overall exposure for the portfolio is
concerned. The very factors that put some investors off would be useful to some
others in ensuring that they have the right kind of exposure, which can fetch
returns.
3. Focused exposure..!
Sector funds ensure that there is a focused
exposure. For example, if someone wants an exposure to banking stocks then they
can go in for a banking fund.
There are times when investors would not know
which companies in a sector would do well. This is because it might not be
possible to predict the internal dynamics within a sector but on an overall
level it might not be too difficult to see which area would do well.
Here again, investors can opt for sector funds.
One factor that will play an important role in returns that the sector fund
generates is the exposure to the portfolio.
It could be that the large cap stocks have a
higher weight but the exposure to several other stocks will be something that
investors could find useful, as they might not be able to build a similar kind
of situation with respect to their individual stock selection.
About the Author..!
The writer By Mr. Arnav Pandya is a CA and
certified financial planner.
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