Why sectoral funds are tricky

Sectoral funds invest at least 80 percent of the money in shares of companies operating in one sector. They invest in sectors such as banking, pharma, energy or technology, or they track themes such as infrastructure, consumption, ESG and PSU. Narrow investment mandate--compared to a thematic or diversified equity fund--make sectoral funds vulnerable to losing money when the sector is out of favour. In good times, however, these funds can boost portfolio returns. To make money in these funds you have to get both entry and exit right. That makes it a product suitable only for savvy investors. Most investors should invest in diversified equity funds through SIP.