As an investor, you have various investment choices for investing in mutual funds. As you narrow down from the broad market to one sector, the risk increases, but so does the potential to earn higher returns. This article examines sectoral and thematic funds, their features, the returns they give, and which ones to choose.
A sectoral mutual fund scheme is an open-ended equity scheme that invests a minimum of 80% of its total assets in equity and equity-related instruments of a particular sector. For example, an FMCG fund like ICICI Prudential FMCG Fund invests 80% of its total assets in equity shares of FMCG companies like Hindustan Unilever Limited (HUL), ITC, Godrej Consumer, Tata Consumer, etc.
The fund manager decides which FMCG company shares to buy, how much to buy, when to buy, etc. Similarly, they decide which FMCG company shares to sell, how much to sell, when to sell, etc. All these FMCG companies are a part of the Nifty FMCG Index (sectoral index) offered by the NSE.
Sectoral funds have sectoral indices offered by the BSE and NSE as their benchmarks. For example, the ICICI Prudential F...