6 Reasons Why You Must Invest In Sector Funds

There are different kinds of investments for people with different financial goals, risk tolerance, and knowledge of the market. If you have a fair understanding of an industry that you think will be doing well and an appetite for taking risks, sector funds can yield you high returns.

What is Sector Fund?

A sector fund is a type of equity mutual fund that invests in a particular sector of the market such as technology or healthcare. They are more volatile compared to the entire market because of the lack of diversification. However, it is also the reason why you can beat the market if the sector you bet on sees growth. If you have the talent of spotting potential for growth in a particular sector, you can use it to gain large returns through sector funds.

Why Must You Invest In Sector Fund

Sector funds, despite being extremely volatile, offer several financial advantages that you will not get in other types of mutual funds.

• There is a high potential for capital growth. In sector funds, your capital grows significantly when that particular sector witnesses high growth.
• If a particular sector is growing steadily, creating a diverse portfolio across various companies of that sector yields large returns compared to other mutual funds. However, you must know when to exit.
• If you are investing in sector funds beside your core, diversified portfolio, you have the opportunity to boost your total return.
• If your portfolio does not have adequate exposure to a certain sector that you are confident will do well, investing in sector funds is a great idea.
• If your style is aggressive when it comes to investments, sector funds suit your financial goals like no other investment.
• If you are investing for the sake of long-term wealth creation, sector funds can generate huge profits for you due to their cyclic nature. However, you must be able to patiently wait out the cyclic lows.

If you are okay with sudden losses and sudden gains, sector funds are the perfect vehicles of wealth multiplication for you. There is no point missing out the on the profits a hot sector can generate if you can stomach the risks. Now that you know what is sector fund, get researching on the performances of various sectors and start investing. However, do not invest on a hunch or a past trend. Only invest when you are confident of growth in a particular sector.