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Sectoral funds outpaced peers in last 10 years
updated on 31 mar 2017
Sectoral funds are mostly ignored by investors as schemes under this category are exposed to a single sector with only a handful of stocks, and thus they carry higher risk compared with diversified funds.
Are you among those investors who have totally ignored sectoral funds? If yes, then you have missed an opportunity to outpace other equity funds in the long run.
Data from mutual fund research firm suggests sectoral funds focused on FMCG, pharma and banking sectors have delivered annualised returns of 19.35 per cent, 17.68 per cent and 17.61 per cent (CAGR), respectively, over the past 10 years till March 15, 2017.
Pharma and FMCG sectors saw a bull run for almost eight out of the past 10 years as the economic slowdown turned market focus on the defensive and cash-rich stocks
Smallcap, midcap, multicap and largecap equity funds have delivered an annualised return of 15.25 per cent, 14.66 per cent, 12.94 per cent and 10.83 per cent, respectively, over the past 10 years. Funds focussed on pharma, banking and FMCG sectors have also outpaced other segments in last 10 years.
However, the picture looks different when returns for the past five years are considered, as smallcap and midcap equity funds have outpaced the sectoral funds with 25.57 per cent and 21.35 per cent returns, respectively. Pharma, FMCG and banking funds have delivered 21 per cent, 18.98 per cent and 13.09 per cent returns, respectively, during this period.
Financial advisers say sectoral funds are risky propositions due to concentration risks and the cyclical nature of their performance.
If an investor has a strong view and takes the right call, sectoral funds can deliver far better returns. In the case of a sectoral fund, it is important for an investor to know when to enter or exit a scheme, they say.
In the past 10 years, the BSE Sensex has risen 138 per cent till March 16, 2017, whereas BSE FMCG index, Healthcare index and Bankex have surged 453 per cent, 350 per cent and 298 per cent, respectively.