Sectoral funds drive record equity mutual fund inflows: Is now the right time to invest?

"Despite uncertainties due to tariff war, India's growth story remains intact -- which is evident in strong inflow in equities -- backed by benign inflation, improved liquidity, improved savings," Venkat N Chalasani, CEO of AMFI, told PTI.

Among equity-oriented mutual fund categories, Sectoral or Thematic funds topped the charts. This was followed by Flexi-Cap funds. In addition, small-cap funds and midcap funds, large and midcap fund registered robust inflows.

"This month has seen extremely encouraging inflow nos. Equity flows have surged by 81% month-on-month, with the largest boost coming from sectoral funds, particularly new fund offerings that drew ₹7,404 crore out of the ₹9,426 crore in the category," said Suranjana Borthakhur, Head of Distribution & Strategic Alliances at Mirae Asset Investment Managers.

What are sectoral funds?

One kind of equity mutual fund that focuses on a certain industry, such as technology, healthcare, or finance, is called a sectoral fund. At least 80% of their assets must be allocated to equities in that particular industry. Due to a lack of diversification, this concentrated approach carries a higher level of risk even if it might yield sizable profits when the selected sector performs well.

There are several important advantages to investing in a sectoral fund. By distributing your funds among several businesses in a particular industry, it primarily enables diversification within that industry. If you have accurately identified a high-growth industry, this strategy also offers the possibility of bigger rewards. This kind of fund might be a good choice if you are comfortable with the risks involved and have strong beliefs about a certain industry.

Who should invest in sectoral funds? Is now the right time to invest?

"Investors should remain mindful when chasing sectoral opportunities. These products can be rewarding if the risks are understood and investments are made for the right reasons. Focused and small-cap funds also jumped by 66% and 61%," said Suranjana Borthakhur.

Sectoral funds are best suited for experienced investors who have a good grasp of market cycles and can anticipate sector-specific trends. While these funds can offer high returns, they also carry a significant concentration risk, making them particularly vulnerable during downturns in that specific industry, as noted by Balwant Jain, Mumbai-based investment and tax expert.

Borthakhur also highlighted the rise in Systematic Investment Plan (SIP) numbers. This growth, she noted, points to a number of positive trends: increasing investor maturity, better financial awareness, wider digital access, and continued market confidence. Ultimately, she believes that systematic investing is the most effective long-term strategy."