1. When you invest in a sector fund, you get access to the best stocks in that sector chosen by someone
who tracks the sector closely.
2. While sector funds belong to the top end of the risk spectrum, under certain circumstances they can
help reduce portfolio risk.
3. In a portfolio of multiple mutual funds, a sector fund can reduce portfolio risk provided the sector has a low correlation with the other equity funds and has low sensitivity to macro-economic factors.
4. However, sector funds have a narrow mandate as they invest only in the chosen sector, and may get hit hard if the sector is faced with adverse developments.
5. Sector funds are also highly volatile, with both the top and worst performer likely to be a sector fund.
6. Investing in sector funds based on past returns can also harm the corpus of an investor, and matters get compounded further due to investors' tendency to hold on to a losing position because they are reluctant to book a loss.
7. If you discover that the sector faces problems that can't be addressed in the short term, cut your losses and exit.
8. It's best to set a downside target level at which you will redeem these high-risk investments.
9. You should look at fundamental factors such as earnings growth, return on capital and valuations while choosing a sector, and be ready to do research and keep abreast of developments while
placing sector-specific bets.
who tracks the sector closely.
2. While sector funds belong to the top end of the risk spectrum, under certain circumstances they can
help reduce portfolio risk.
3. In a portfolio of multiple mutual funds, a sector fund can reduce portfolio risk provided the sector has a low correlation with the other equity funds and has low sensitivity to macro-economic factors.
4. However, sector funds have a narrow mandate as they invest only in the chosen sector, and may get hit hard if the sector is faced with adverse developments.
5. Sector funds are also highly volatile, with both the top and worst performer likely to be a sector fund.
6. Investing in sector funds based on past returns can also harm the corpus of an investor, and matters get compounded further due to investors' tendency to hold on to a losing position because they are reluctant to book a loss.
7. If you discover that the sector faces problems that can't be addressed in the short term, cut your losses and exit.
8. It's best to set a downside target level at which you will redeem these high-risk investments.
9. You should look at fundamental factors such as earnings growth, return on capital and valuations while choosing a sector, and be ready to do research and keep abreast of developments while
placing sector-specific bets.