IT sector funds or technology funds are down 28% in this year till date. The schemes are down 19% in three months and 2.9% in a year, according to Value Research, a mutual fund tracking firm. It may not surprise many investors as everyone knows that the stock market is facing rough weather, and all sectors, including technology, are feeling the pressure. However, many investors want to know what will happen to their investments in these schemes.
According to mutual fund advisors, many investors started investing in IT funds in the last two to three years. IT schemes got a major boost in the covid years as the transition to online mode by the world was supposed to help IT companies rake in the money. Also, a new theory started gaining momentum that investors need not be scared of IT funds. Just look at the consistency shown by IT sector funds in the last few years, said the fans.
To be fair, IT sector schemes indeed has helped investors to create wealth over a long period of time. For example, the category generated 19.53% in 10 years. However, investors were abandoning the old advice of investing only a small part of the corpus in IT schemes (or any thematic or sector schemes, for that matter). New theories were gaining currency on the back of an easy money policy and an unprecedented scenario presented by the pandemic.
However, the tide has turned with global economies coming under historically high inflation. In the US, for example, inflation is 40-year high. This has raised fears that the central bank may be forced to opt for steeper rate hikes to contain the inflationary pressure in the economy. There are also concerns that steeper rate hikes may hurt growth and possibly the economy may get into a recession. If these fears come true, companies will be forced to cut IT budgets.
According to mutual fund advisors, investors can invest or continue to invest in IT schemes provided they follow certain protocols. One, sector schemes like IT funds are meant for sophisticated investors who understand the market and the particular sector well. If you are new to mutual funds or don’t follow IT sector, you should not invest in these schemes. Invest in a good flexi cap scheme to take advantage of a sector or theme that is doing well.
Owing to changing interest rates on guaranteed savings products, many risk-averse investors have moved towards debt funds. Debt funds are less volatile compared to popular equity funds, with the potential to offer better returns. However, investors are still prone to default risk, i.e risk of losing principal and interest payments, and interest rate risk, i.e price fluctuations due to changes in interest rates.
Target Maturity Funds (TMFs) help investors to more effectively navigate the risks associated with debt funds by aligning their portfolios with the fund’s maturity date.
Target Maturity Funds (TMFs) help investors to more effectively navigate the risks associated with debt funds by aligning their portfolios with the fund’s maturity date.
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