IT and technology funds have delivered 51% absolute return over a one year period.
The recent depreciation in rupee has put information technology funds back in the limelight.
According to Value Research, technology funds have delivered a 51% absolute return over a one year period, just one notch below the top performing mid cap and infrastructure funds category which have delivered 59% and 52% returns respectively.
With the expectations of further depreciation in rupee IT funds are likely to gain the most. The BSE IT Index is up 7% in June so far compared to 3% rise in the broader BSE Sensex index.
|
Scheme |
1 year return |
AUM (Rs. cr) |
|
Birla Sun Life New Millennium Fund |
49 |
68 |
|
DSP BlackRock Technology.com Fund |
45 |
48 |
|
Franklin Infotech Fund |
44 |
157 |
|
ICICI Prudential Technology Fund |
66 |
75 |
|
SBI IT Fund |
51 |
214 |
|
Source : Value Research |
||
So, should you recommend IT funds to your clients?
Financial advisors are recommending investors to stick to diversified funds if they can’t time the entry and exit from sector funds. “It is better to stick to diversified funds. The stocks are performing on the back of rupee depreciation which has improved the operating margin of these companies. Diversified funds are well placed to grab the opportunities available in the market,” said Vinod Jain of Jain Investments.
There are only six IT funds in the industry. Most of them were launched during the IT boom in 1999-2000. These funds collectively manage a little over Rs. 560 crore.
Fund officials say that these funds are meant for savvy investors. “Due to the risky nature of these funds, they are not promoted by fund houses in a big way. It is a cyclical sector. Distributors too don’t recommend technology funds,” said D P Singh, Executive Director and Chief Marketing Officer, Domestic Business, SBI Mutual Fund.
Even though these funds are offering mouthwatering returns, financial advisors recommend time-tested diversified funds to risk averse investors.
“Over the next five years infrastructure funds would give better returns than technology funds. One can invest in technology funds to take a cyclical bet. However, it is not advisable to invest in technology funds at this juncture because the stocks have already run up. We would recommend investing in diversified funds. Over a long period diversified funds can deliver better risk-adjusted returns than technology funds,” said Chetan Chandaliya of Crown Consultants.
“One approach is to invest in different sector funds as a part of diversification. However, one should not invest in a thematic fund just because the sector is looking promising. Diversified funds are better placed to navigate in market,” said Hemant Rustagi of Wiseinvest Advisors.
Are you recommending technology funds to your clients?
