The IT sector funds have returned a paltry 5.06% in the last year. But that hasn’t stopped fund houses from being bullish on tech-sector funds. Most of such schemes invest primarily in IT companies listed in India. Should you invest when the sector has fallen so much?
Mutual fund houses are often criticised for launching schemes that track themes and sectors that have done better in the recent past. Such a strategy attracts significant inflows, as investors are willing to write cheques based on past performance. However, this time, mutual fund houses are launching schemes focusing on the information technology (IT) sector, which is not in the best of health. In the last year ended August 21, 2023, technology sector funds have given 5.06 percent returns compared to 18.12 percent given by multicap funds, as per Value Research.
At this juncture, the new fund offers (NFOs) of Bandhan Nifty IT Index Fund and Quant Teck Fund are open for subscription, while the NFO of HDFC Technology Fund (HTF) will open on August 25, 2023. Axis Nifty IT Index Fund and DSP Nifty IT ETF reopened for continuous subscription last month.
Tech sector funds
Like any other sector fund, these technology sector schemes invest at least 80 percent of the money in shares of companies in the IT sector. Thirteen technology sector funds manage assets worth Rs 28,864 crore as on July 31, 2023. Some of these are actively managed and also invest some money in IT stocks listed overseas. The passively managed schemes track the Nifty IT Index, which comprises 10 stocks from the sector. At present, there are 11 such funds. Nifty India Digital is a more diversified index consisting of 30 companies that represent the digital theme. The Tata Nifty India Digital ETF tracks this index.
Most active fund managers specify their universe, seldom going beyond the broad theme of digital or IT. As per the presentation of HTF, the fund manager will build the stock portfolio from a universe of 121 stocks spread across IT, telecom, consumer services, media-entertainment-publication, financial services, and other services. These stocks are spread across the large-, mid-, and small-cap segments based on the market capitalisation of companies. S&P BSE Tech Index has a 79 percent weight in IT stocks, 18 percent in telecom stocks, 2.7 percent in media & entertainment, and 0.1 percent in consumer services.
Since these are sectoral offerings, the portfolios are generally concentrated and may have large allocations to individual stocks. For example, the Aditya Birla SunLife Digital India Fund has invested 22.8 percent of its corpus in the shares of Infosys. Franklin India Technology Fund, the oldest scheme in this space, has Zomato as its top Indian holding with 7 percent allocation.
Source: https://shorturl.at/awFUV
