Sectoral and thematic mutual funds can outperform during a rally in broader markets. These sectors and themes have performed very well due to strong rally in almost all the segments since last 1 year, thereby increasing the focus of mutual funds.
According to the data available on Value Research, technology funds have given stupendous returns of 84 per cent in the last one year. The stock of companies related to information technology and software business has seen a strong rise. The focus on digital transformation during the Corona pandemic has strengthened these companies.
The best technology fund has given returns of more than 100% in the last 1 year. Along with this, due to the focus on infrastructure in the Union Budget 2021, there has been a rally in the infra sector and during the last one year, the funds focused on infra stocks have given 69 per cent returns.
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Apart from this, thematic funds focusing on natural resources and energy have performed very well during the last one year. This fund category has given returns of 72.5 per cent during this period.
Apart from this, gains in metals, utilities, petroleum products and commodities on the expectation of economic revival have given strength to thematic funds.
Banking and financial services, which have been running sideline for the past several years, have participated in the bull run of the market since March 2020. Funds based on these themes have given returns of up to 61 per cent in the last one year. Although the problem of NPAs still persists, it has to be seen whether the rally of these sectors will continue in future also.
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Dividend yield funds have also given 55 per cent returns during the last one year. These funds are highly diversified. Among these schemes, IT, FMCG, energy, metals and auto have the highest weightage in the portfolio.
Keep in mind that most of the sectors and themes are cyclical in nature. Thus the returns can be uncertain. Timing of entry and exit is very important in a fast rally.
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