Diversified funds versus sector funds - How to make the choice

May 19, 2021

Diversified funds versus sector funds - How to make the choice

 

Before we get into this comparison of sector funds vs diversified funds, let us understand the basic difference between diversified and sector mutual funds. While diversified funds are large cap funds which are spread across sectors and themes, the sector funds are more focused on a particular sector or industry group. So, an IT Fund or banking fund or FMCG fund or even a Pharma fund would be qualified as a sector fund. There are some basic questions you need to think up here. Firstly, you invest in mutual funds for the benefit of diversification, which you cannot get in direct equities. Buying sector funds makes your risk concentrated and goes against the basic grain of diversification. So, the question is, “Should I invest in diversified or sector mutual funds and what should drive the choice?” Let us look at 4 key factors to be considered to make this choice.