Sector/Theme funds like Banking, FMCG, Pharma, Infrastructure funds are riskier than diversified funds, as the investments are concentrated in a sector or few sectors. Sector/Theme funds tend to out perform diversified funds during momentum phases, however, they also tend to suffer huge downsides when markets fall. As Sector/Theme funds can be more volatile; they are only apt for informed investors who have large risk appetites. The investment horizon for Sector/Theme funds should be more than three years and allocation 10-15% of the investment portfolio. Investors should also preferably opt for the systematic investment plan or the systematic transfer plan routes where the risks are reduced by spreading out the investments over a longer time horizon.
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