While the Sensex has slipped from the 12,000 levels to below the 10,000 level in a matter of a few weeks, the downtrend has not spared any sector. Even the dollar strength has not spared export-focused sectors like technology as no one had bargained for the sudden reversal of trends in the currency. In fact, no sector has been able to withstand the market tide which has been regularly wiping away the gains made by investors over a long period of time.
While one may argue that betting on a single sector may not be the solution and it is better to stick to stocks in general, investors can use certain sectors for their longterm portfolio which can help them in earning good returns over a period of time. However, the golden rule is that even if you choose your sector for long term, keep an eye on its prospects and performance and make it a habit to review your choice. For mutual fund investors, diversified mutual funds have proved to be the best option for a long time simply because these funds churn their sectors at regular intervals. With diversified funds, with large-cap focus having proved better performers when compared with sector funds in bear market, investors can safely allocate a larger portion for them at present. But, those with a good risk appetite can look at sectoral funds in the current scenario as many stocks in sectors like infrastructure, power, technology and even capital goods have lost sheen. While they have the potential to earn good returns in bullish market conditions, these funds are also exposed to structural vagaries. While aggressive investors can allocate a portion of their corpus for sector funds it is a strict 'no' for someone who can't stomach the volatility associated with such funds. How to choose a sector Deciding to invest in a sector may not be challenging but choosing the sector definitely is. One of the ways to pick a sector is to look at its medium-term prospects. Though sector funds are riskier than diversified funds, invest in a sector which has a good potential in the near term. Hence, the investment tenure too should be a minimum of 2-3 years like diversified funds. While choosing a sector, avoid investing into a sector which has seen a sharp rise in a short span of time. Though retail investors always tend to chase sectors which are in the news or companies which have seen a sharp upside, such a strategy will only increase the waiting period for investors. For instance, the flood of IPOs from the construction sector had taken the share prices of many construction and realty sector stocks to dizzying heights, a year ago. Now the sector heads the list of non-performance ones and those who didn't book profits earlier, have seen huge erosion in value. As a result, investors who made their investment at higher levels will have to wait for a good 3-5 years to see good returns. In fact, one of the big risks associated with a sector is that the performance tends to get cyclical and the investor should have the ability to hold on to his investment. Besides keeping away from hot sectors, investors would also be better off if they choose sectors which are more dependent on domestic consumers. For instance, sectors like FMCG, retail, services, infrastructure and media are a reflection of the economy though policy changes relating to the sector could have some short-term implications. Infrastructure, for instance, is a typical example which offers good growth potential in the long term. Right option The next question is should you constantly make an allocation to a sector fund or should you stick to a onetime option. If you are an investor who relies on SIP route for your investments, sector fund may not make much sense. If you are still keen on sectoral allocation, do not put more than 10 per cent of your mutual fund corpus towards individual sectors. In fact, lump sum investment would be a better option for sector funds as it would be easy to monitor. However, make it a point to monitor to review the performance on a regular basis as. Those who take the direct equity route should stick to industry leaders for their investments as large companies can whither the vagaries of a sector in a much better way when compared to small companies. http://economictimes.indiatimes.com/Sector_fund_good_if_you_have_risk_appetite/articleshow/3642087.cms Sweet is the remembrance of troubles when you are in safety. --~--~---------~--~----~------------~-------~--~----~ You received this message because you are subscribed to the Google Groups "Kences1" group. To post to this group, send email to [email protected] To unsubscribe from this group, send email to [EMAIL PROTECTED] For more options, visit this group at http://groups.google.com/group/kences1?hl=en -~----------~----~----~----~------~----~------~--~---
