In the ever-evolving landscape of technology and information technology (IT) sectors, equity mutual funds offer investors a promising gateway to capitalize on the sector’s growth potential. These funds aim to invest in companies at the forefront of technological advancements, providing exposure to high-growth opportunities in the digital realm. If you’re seeking to align your investment strategy with the dynamic technology sector, this blog will help you through the best technology and IT sector equity mutual funds available in India.
What is Sectoral-Technology Mutual Fund
A Sectoral-Technology Mutual Fund is a type of mutual fund that focuses primarily on investing in companies operating in the technology sector. It specifically targets technology-related industries such as information technology, software development, electronics, telecommunications, and other technology-driven businesses.
The fund aims to capitalize on the growth potential and opportunities within the technology sector and offers investors exposure to this specialised segment of the market.
However, it’s important to note that sectoral funds are inherently more risky and suitable for investors with a high-risk tolerance and a keen understanding of the technology industry. Just for example, ICICI Pru Technology Fund currently has more than 50% allocation just to 3 stocks with Infosys having around 27% asset allocation. So your money is not only concentrated in a sector but also in just few stocks.
Advantages of Sectoral-Technology Funds
Below are key advantages:
- High Growth Potential: Technology companies often experience rapid growth, making these funds attractive for investors seeking high returns.
- Focused Exposure: Sectoral-Technology Funds concentrate on technology-related industries, providing targeted exposure to a specific sector.
- Diversification: Despite being sector-focused, these funds still invest in multiple companies within the same sector, offering some level of diversification.
- Opportunity to Capitalize on Innovation: Technology companies are at the forefront of innovation, and these funds enable investors to participate in groundbreaking advancements.
- Hedge Against Inflation: Technology companies may perform well during inflationary periods, providing a potential hedge against rising prices.
- Professional Management: Managed by experienced professionals who possess in-depth knowledge of the technology industry.
- Suitable for Technologically-Oriented Investors.
- Tactical Allocation: Investors can strategically allocate their portfolio to capitalize on growth opportunities in the technology sector.
Are Sectoral-Technology Mutual Funds high risk?
Yes, Sectoral-Technology Mutual Funds are considered high-risk investments. These funds focus solely on the technology sector, which can experience significant volatility and fluctuations in stock prices. The technology sector is highly influenced by factors such as rapid advancements, market trends, and regulatory changes, making it more susceptible to market swings.
Due to their concentrated exposure, Sectoral-Technology Funds are more sensitive to industry-specific risks and events, which can lead to higher potential gains but also higher losses. Investors in these funds should be prepared for sharp ups and downs in their investment value.
Who should invest in Sectoral IT -Technology Mutual Funds?
Sectoral-Technology Mutual Funds are suitable for investors who have a high-risk tolerance and a positive outlook on the technology sector. These funds are ideal for those who believe that the technology industry will outperform the broader market and want to capitalize on the potential growth opportunities in the sector.
Investors who have a good understanding of the technology industry and can actively monitor market trends and developments may find Sectoral-Technology Funds appealing. Additionally, individuals who already have a diversified investment portfolio and are looking to add a high-risk, high-reward component can consider allocating a portion of their investments to these funds.
However, it’s important to note that Sectoral-Technology Funds should only form a part of a well-diversified investment strategy. As they come with higher risks, investors should carefully assess their financial goals, risk appetite, and investment time horizon before considering investments in these funds. Consulting with a financial advisor can also help in making informed decisions based on individual circumstances and objectives.
Factors to Consider Before Investing in the Best Technology Mutual Funds in India 2023
If you are considering investing in these funds, it’s essential to be aware of the following points:
- Technology stocks can be highly volatile and exhibit unpredictable market behavior.
- Technology sector funds hold a diverse range of tech companies, which can result in increased volatility compared to other fund types.
- These funds are commonly used as hedge funds or for long-term investment strategies.
- Due to their elevated investment risk and volatility, technology sector funds may not be suitable for beginners in the investing world.
Which are best performing Sectoral IT -Technology Mutual Funds in India?
Below is list of Sectorial IT funds or technology funds that have performed well in last few years.
|3 year returns
|ICICI Pru Technology Direct plan
|ABSL Digital India Direct plan
|Tata Digital India Direct Plan
|SBI Tech Opportunity Direct Plan
|Nippon India ETF Nifty IT
|Franklin India Technology Direct Plan
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Which Sectoral IT -Technology Mutual Fund should I invest?
To answer this, first you need to ask yourself if you are believer in Actively managed funds or Passive investing. If actively managed style suits you, better to go with ICICI Pru Technology Fund. It has very long track record and returns are good. However it is significantly volatile compared to ABSL Digital India Fund. If you need comparatively smoother experience then that could be your choice. SBI Tech Opportunities is better if you are okay with little lesser return but prefer least volatility. Most of them are large cap oriented one.
For Passive investment style, you have option to go with Nippon India ETF Nifty IT fund. A very low cost Exchange Traded Fund (ETF) will be a good choice. This has large to mid cap exposure compared to other actively managed ones which are more on large cap side.
In conclusion, Sectoral-Technology Mutual Funds can be a compelling investment option for those seeking exposure to the dynamic and rapidly growing IT sector. With the increasing role of technology in various aspects of our lives and the potential for continued innovation and growth in the industry, these funds offer an opportunity to participate in the success of leading technology companies. However Machine Learning and Artificial Intelligence is bringing disruption in technology sector and next few years will be make or break for many companies.
However, it’s important to keep in mind that Sectoral-Technology Funds come with higher risk levels due to their concentrated focus on a specific industry. As with any investment, thorough research and understanding of the risks involved are crucial. Investors should assess their risk tolerance and investment objectives carefully before allocating funds to these sector-specific funds.
Furthermore, diversification remains a key principle of prudent investing. Combining Sectoral-Technology Funds with a well-balanced and diversified portfolio can help mitigate risk while optimizing returns. For individuals who are bullish on the this sector and have a long-term investment horizon, these funds can be a strategic addition to their overall investment strategy.
As with any financial decision, seeking professional advice from a qualified financial advisor can provide valuable insights and personalised recommendations tailored to individual goals and circumstances. By making informed choices and staying abreast of market developments, investors can position themselves to benefit from the potential growth and opportunities presented by the technology sector. Happy investing!