Sector Mutual Funds: An Overview

What are sector funds?

As is evident from its name, a sector fund is a mutual fund which parks investor’s money in a certain specific sector of the economy like utility or energy. There are many different types of sector funds which differ from one another in terms of investment objective, market capitalisation and the kind of securities present in the portfolio. Sector mutual funds can’t be categorised into groups such as mid-cap growth funds or large-cap value funds. Rather, they are categorised in the following manner -

1) Natural Resources Funds

These funds have the money of the investors parked in timber and forestry as well as energy sources such as gas and oil. Investors looking for long term growth can invest in these funds.

2) Utility Funds

The money remains invested in utility firm’s securities. Conservative investors looking for a fixed income can benefit from these funds as they offer steady dividends. An element of growth is also present in these funds.

3) Real Estate Funds

If you want to invest in real estate without actually buying any property then real estate funds are your best option. They are suitable for small scale investors looking for growth as well as income.

4) Financial Funds

Money in financial funds remains parked in the finance industry. Holdings are spread across banking, insurance, investment, accounting and mortgage firms.

5) Healthcare Funds

The money in such funds remains stashed in for-profit medical organisations like pharmaceutical companies. A few of these funds also cover biotechnology companies and firms that have made breakthrough advancements in this industry.

6) Technology Funds

If you want exposure in the sector of technology then technology funds are your best bet. The sector mainly concerns electronics, computers and other informational technology employed in different applications.

7) Communications Funds

Communication funds invest in the sector of telecommunications. Sometimes, companies offering internet services also remain included in some funds.

8) Precious Metals Funds

For exposure to metals such as copper, silver, gold, palladium, platinum etc, you can invest in precious metals funds.

There are many funds that focus on the subsectors of the economy rather than on the main sectors, such as semiconductors or banking.

Why you should make investment in a sector fund?

A lot of people want market exposure in certain sectors, but fail to do so due to various reasons. Sector funds come as a great relief for those people, as market participation with sector funds is a breeze. With sector funds, you can also get a great deal of diversification within a particular sector, which may not be possible otherwise.

Since certain sectors tend to move against the economy, sector funds can also be used to hedge portfolios.

Final Words -

Sector funds are best suited for aggressive investors looking to explore a complete sector of the economy or a particular subsector thereof. Overexposing your funds to any particular sector of the economy can land you in unnecessary financial troubles, which, however, may be avoided by taking appropriate measures.