IT Sector Mutual Fund: Everything You Want to Know

As every upcoming year belongs to some trending fund in the market. These few years belong to the IT sector funds because IT and digitalization are at a boom. The IT Sector Mutual Funds are one of the best well know funds who has a tremendous track record in the past years in mutual fund industries. This technology fund has the potential to generate the desired returns for every investor.

In this article, we will delve into this IT sector scheme in detail and a basic understanding of why this fund is so popular. So let’s bring the basics into this article.

The Exact Definition of IT Sector Mutual Funds

The IT sector mutual fund falls under the equity category which attracts the technology industry companies. This mutual fund gives a chance to IT Sector mutual scheme investors to grow their portfolio even in the volatile market. If you are okay with the high risk then this fund is meant for you. But it also has the ability to reduce the risks by diversifying your investment portfolio. The IT sector mutual fund has the potential to generate large capital appreciation for long term growth.

If you are looking to grow with the IT sectors in mutual fund industries, then we will also discuss the best fund it offers for investors who believe in the IT sector. This IT scheme basically involves the achievement of outperforming the mutual fund market.

What are the Main Advantages of IT Sector Funds? 

Investing in an IT sector mutual fund might be a smart decision, let’s see how this mutual fund category benefits you;

• Ability to Provide high growth potential

The IT sector is known for growth and innovation that will offer high potential returns, it will also offer the benefit of different businesses and daily life innovation. The IT sector provides exposure to the companies that are likely to give these types of trends and capital appreciation

• Diversified Portfolio

These category belongs to the equity funds, so that it carries risk and to reduce the higher risk this IT sector mutual fund diversified its investment into various technology and digitalization companies this asset allocation of funds reduces the risk.

• Professional Management

These sector funds are managed by professionals who conduct deep research and analysis that will give them clarity that which fund will boom in the future. This research also helps investors to identify the best fund for their investment portfolio. These experienced experts provide a particular category a chance to grow and after it becomes popular they identify the best opportunities in the mutual fund market to invest in these funds.

• Emerging Technology Companies

The IT sector allows investors to gain exposure to emerging technology companies that are in trends such as computing, hardware, software, manufacturing, cyber securities, fintech companies, etc. This exposure can provide growth in investing which traditional investing is not capable of offering investors.

• Offer Liquidity

It will the investors the freedom to buy or sell anytime they want because mutual funds are a liquid assets. This IT sector gives you the advantage of a growing technology sector, even when the market is volatile.

• Tax Efficiency

The IT sector offers the liberty to gain long term capital growth, this tax enhances the capability of overall returns. You can submit the tax according to your income tax slab and with a low percentage.

• Systematic Investment Plan

This SIP (Systematic Investment Plan) offers you a chance to invest in a disciplined manner and provides growth opportunity investment. If you invest in this category with SIP, then you can earn more return in long term duration. This plan also offers the best fund that will give you space to build your savings in the long term.

How has IT sector Mutual Funds Performed Historically?

Historical Performance of IT Sector Mutual Funds

Outperformance vs. Benchmarks: IT sector mutual funds have consistently outperformed broader market indices like the Nifty 50 and Sensex over 3-year, 5-year, and 10-year periods.

This indicates the sector's ability to generate superior returns.

• Consistent Growth: The IT sector has demonstrated consistent growth, with funds delivering positive returns in most years. Even during market downturns, IT funds have shown resilience and the ability to recover quickly.

• Volatility: While IT sector funds have higher volatility compared to diversified equity funds, the higher risk is compensated by superior returns over the long term.

• Investors with a higher risk appetite can benefit from the growth potential. Diversification Benefits: Investing in IT sector funds can provide diversification within an equity portfolio, as the sector often exhibits a low correlation with other sectors.

• This can help reduce overall portfolio risk. Alignment with Economic Growth: The IT sector is closely tied to economic growth, both in India and globally. As the economy expands and technology adoption increases, IT companies and funds are poised to benefit.

Are IT Sector Mutual Funds Risky?

IT sector mutual funds can be considered risky investments due to several factors:

• Higher Volatility: The technology sector is known for its rapid growth and innovation. But it can also experience significant price fluctuations. This volatility can lead to sharp declines in fund value during market corrections or downturns.
• Market Sensitivity: IT companies are often sensitive to changes in market conditions, economic cycles, and investor sentiment. Factors such as economic slowdowns, regulatory changes, or shifts in consumer preferences can adversely affect the performance of technology stocks.
• Concentration Risk: Many IT sector mutual funds may have concentrated investments in a few large companies or specific sub-sectors within technology. If these companies underperform, it can significantly impact the overall fund performance.
• Rapid Technological Changes: The technology landscape is constantly evolving. And companies that fail to innovate or adapt may struggle to maintain their market position. This risk can affect the long-term viability of the investments held within the fund.
• Less Diversification: Compared to diversified equity funds, IT sector mutual funds focus solely on one sector, which can increase risk. Economic or sector-specific downturns can have a more pronounced effect on these funds.IT sector mutual funds can be considered risky investments due to several factors.

Which is the Best IT sector Mutual Funds in India?

1. SBI Opportunities Technology Fund

This fund was introduced to the investors on 01-01-2013. With an asset under management of Rs. 4,206.13 crores, with investments in a diverse portfolio of equities and equity-related instruments in technology and technology-related firms. The plan aims to give the investor the chance to benefit from long-term capital appreciation.

• TATA Digital India Fund

As of 31- august-2024 the asset under management of this fund is Rs. 11,377.33 crores, this technology fund was launched on 05-12-2015. The program invests at least 80% of its net assets in equities or equity-related instruments of Indian enterprises in the information technology sector, with the goal of long-term capital appreciation.

• HDFC Technology Fund

This fund was launched in the mutual fund market on 08-09-2023, with an asset under management (AUM) of Rs. 953.31 crores. Investments in equities and equity-related securities of technology and technology-related enterprises are the scheme's primary means of achieving long-term financial appreciation.

• ICICI Prudential Technology Fund

This fund has an amazing asset under management as of 31 August 2024, of Rs. 13,442.37, it’s an old famous scheme that was launched on 03-03-2000. Through the purchase of stock and securities connected to the stocks of technology and technology-dependent enterprises, the program aims to achieve long-term financial appreciation.

End Note

In conclusion, investing in mutual funds for the IT sector is a chance to benefit from the industry's explosive expansion and innovation.

• Given their track record of producing above-average returns, these funds are a compelling choice for investors who are willing to take on more risk.
• Investment funds in the IT industry provide special benefits including diversification. Exposure to developing technology, and expert management, despite the associated dangers like increased volatility and market sensitivity.
• For investors who see the IT sector as having promising long-term growth, IT sector mutual funds can be a useful addition to a portfolio due to their consistent track record of outperformance and ability to profit from technical improvements.
• Moreover, investors may control risk while taking part in the market by utilizing Systematic Investment Plans. Investors can manage risk while participating in the growth of the IT sector over time.