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POSTED BY ON November 12, 2012 11:01 am COMMENTS (5)
Do Sector funds yield good return in long term(10-15 years). I am investing in the following sector funds in monthly SIP and is it ok to continue with those,
Reliance Banking fund – 5000
Reliance Pharma fund – 4000
What are the advantages and disadvantages on investing in Equity SIP vs the corresponding Sector fund?
I am investing monthly in ITC(through equity SIP) for 4000. Is it good to continue with this or should I go for a FMCG fund
Thanks!
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Dear Hameed, what’s the update from you on the matter?
Thanks
Ashal
Sector Funds carry more risk than a diversified fund.
It might be a good long term compounding product if you have proper skills and monitor it frequently.
The risk here is the in the fund mandate itself. Like most Equity fund it should have 70% of its asset in equity to get the tax free status for more than 1 year holding.
So the fund manager hands a tied down even when there is a down fall in the sector.
He cannot take huge cash position and also he cannot goto any other stocks outside sector.
In case of Diversified fund on other than the FM can switch out of a particular bad performing sector to something which is stable or growing.
The idea is it would make performance of a sector fund difficult if that sector is down.
Take Infra for example, last five years have been nothing. A MF in Infra sector is stuck there where as other diversified fund can lower visibility in that and move on
Shaahul,
I partly agree, but majorly disagree with others on the board. Sector funds are excellent opportunities for long term, provided you have a good visibility / understanding of the sector – true with any investment decision. If you have a financial advisor on your side who monitors your investments regularly, then it is a good to have in your portfolio (upto a certain percentage).
Reliance Banking / Pharma are my favourite picks as I am extremely bullish on the banking / pharma industry in India.
Apologies to other fellow boarders – but I don’t think in line with your opinion.
No, sector funds may not be good for long term, you have to constantly watch your portfolio and switch once the sector fund is not performing. Once any of your sector funds are not performing you should plan to switch to either performing sector fund or any good Equity fund.
Sector performance changes constantly based on the trend and policy decisions. In “my” opinion they are not good for long term investments.