Sectoral Funds

Sectoral mutual funds are equity-oriented mutual funds that invest predominantly in a single, specified sector of the economy—such as energy, infrastructure, pharmaceuticals, technology, or financial services.

Also known as sector funds, these schemes invest at least 80% of their assets in equity and equity-related instruments of the chosen sector, resulting in a focused portfolio with a higher concentration than diversified equity funds.

In a sectoral mutual fund, the fund house pools money from multiple investors and invests it in a specific sector, as defined in the scheme mandate. The fund manager selects equity securities of companies operating within that sector based on research, growth potential, and prevailing market conditions.

As per SEBI regulations, a minimum of 80% of the fund’s assets is invested in equity and equity-related instruments of the chosen sector, while the remaining allocation may be held in debt, cash, or liquid instruments.

Due to its concentrated exposure, the fund’s performance is closely linked to the performance of the underlying sector. Sectoral funds may experience higher returns during favorable sector cycles, but may also be subject to higher volatility compared to diversified equity funds.

Sectoral mutual funds are generally suitable for investors seeking focused exposure to a specific sector and who understand the associated risks. These funds may be considered by:

• Investors with a high risk tolerance who are comfortable with the volatility associated with sector-focused investments.
• Individuals with a strong conviction in a specific sector or long-term theme (such as technology, infrastructure, or ESG) and who seek targeted exposure to it.
• Those investors who understand market cycles and are comfortable with concentrated portfolios rather than diversified holdings.
• Investors with a longer investment horizon of three years or more, as sectoral themes may take time to materialize.

Looking to Invest in Sectoral Mutual Funds?

With Anand Rathi, investing in sectoral mutual funds is a simple 5-step process. Here's how you can get started:

Before investing in sectoral mutual funds, investors should to evaluate the following factors carefully:

Similar to thematic or equity MFs, sectoral MFs also follow the same taxation rules (LTCG and STCG).

• If units are sold within 12 months: Gains are taxed at 20% as Short-Term Capital Gains (STCG).
• For units held longer than 12 months: Gains up to ₹1.25 lakh are tax-exempt, and those exceeding ₹1.25 lakh are taxed at 12.5% LTCG.