A sector fund is an equity fund that invests in a certain industry or industry sector. These mutual funds invest in areas such as utilities, real estate, healthcare, and communication, among others. These funds, also known as Sectoral Funds, may invest in the stocks of top-performing firms in a given sector.
What are Sector Funds and How Do They Work?
Sectoral Funds, like Equity Funds, invest in securities from a variety of firms. The main distinction is that different firms may be in the same industry. On certain days, the banking sector may outperform the technology sector, while on other days, pharmaceutical stocks may be positive. Investors may put all of their money into a single area and profit from growth prospects with Sector Funds. According to the SEBI mandate, fund managers must invest at least 80% of their total assets in a specific sector's equities and equity-related securities.
The Advantages of Investing in Sector Funds
When a sector does well, the firms that make up that sector prosper as well. You may generate high returns by investing in specialised Sectoral Funds.
Sector Mutual Funds for Diversification allow you to diversify your investing portfolio. You can acquire stocks from different firms in the same industry.
Sector Funds have volatility and liquidity concerns in addition to concentration risk. As a result, if a sector performs well, you can anticipate higher returns, and if it performs poorly, you may expect lower returns. Fund managers may have to sell shares at a loss to limit prospective losses.
Horizontal Investment
A sector, like any other investment in any other business, will take time to mature and deliver positive outcomes. If you can invest for five years or longer, you should consider Sector Funds.
Taxation
Short-term capital gains (STCG) are taxed at 15% on Sector Funds held for less than a year. Long-term capital gains tax is a tax on funds held for longer than a year (LTCG). LTCG profits of up to INR 1 lakh are tax-free, however gains of more than INR 1 lakh are subject to a 10% tax.
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