A mutual fund or any other fund that specializes in the securities of a particular industry, sector or region is called a Speciality Fund.
Speciality funds’ performance depends on the performance of the industry or the region where the investment has been made. Because there is no sectoral or industry-wise diversification in this type of investment, speciality funds are considered as a high-risk investment due to high concentration risk.
The potential return from speciality fund doesn’t offset the present risk at hand for the investor. Therefore, an investor has to choose wisely before investing in a speciality fund. However, the returns from these funds can be really high in the long run, which makes them an attractive investment option.
Types of Speciality Fund
- Sectoral Funds
- Thematic Funds
- Regional Funds
1. Sectoral Funds
This type of fund invests in specific industries such as infrastructure, pharmaceuticals, technology, banking, real estate, etc. Since these funds focus on one particular segment of the economy, they tend to have high volatility in terms of returns.
As per SEBI guidelines, sectoral funds are mandated to invest at least 80% of its assets in the selected sector. Rest can be invested in debt or money market securities. So a pharma sector fund would be required to invest at least 80% of its assets in pharma sector companies.
These funds are considered ideal for aggressive investors having a high-risk appetite. Investors choose sector funds when they expect a particular sector or industry to outperform the overall capital market.
Top 3 Sectoral Funds to Invest in 2020
- ICICI Prudential Banking and Financial Services Fund:
As the name suggests, the fund has invested its assets in the banking and financial sector. If you look at the sector-wise allocation of the assets, the fund has invested about 92% of its assets in the financial sector.
With just 29 stocks, the portfolio of the fund looks pretty concentrated. However, the fund has invested the majority of its assets in large-cap (65.01%) which gives it a stable outlook in the time of market turmoil. The fund has also allocated around 23% and 11% in mid-cap and small-cap respectively.
The fund has returned over 20% returns in 1-year and 3-year time frame while It has generated about 18.56% returns per annum in the last 5 years which makes it really attractive. (as of May 31, 2019)
- Franklin Build India Fund:
The fund invests in the infrastructure sector. However, if you look at the sector-wise allocation of the fund within the infra sector, the fund looks well-diversified. The fund has invested about 30% in the financial sector, 20% in the energy sector and another 15% to the construction sector.
With just 33 stocks in its portfolio, the fund has followed concentrated investment strategy. The fund has allocated around 70% of its assets in large-cap, while investing around 10% and 18% in mid-cap and small-cap respectively.
It has delivered returns at a fairly good rate of 17.05% in the last 5 years (as of May 31, 2019)
2. Thematic Funds:
Thematic funds invest their assets in a theme-oriented pattern that may comprise multiple related sectors, for example, MNC, energy, consumption-oriented funds.
As per SEBI guidelines, a fund to be classified as a thematic fund must invest at least 80% of its assets in the sectors related to a particular theme. Rest of the assets can be allocated to other equity, debt or money market instruments.
Also Read: Difference b/w Sectoral and Thematic Funds
Top Thematic Funds to Invest in 2020
- Aditya Birla Sun Life India GenNext Fund: The fund is a consumption-centric thematic fund. Interestingly, despite being a thematic fund, Aditya Birla SL India GenNext Fund has invested about 38% of its assets in the financial sector. The fund has invested about 24% of its assets in the FMCG sector and another 7% in healthcare.
The fund currently holds 61 stocks in its portfolio which makes it well diversified. It has invested around 61% of its assets in large-cap, and 35% in mid-cap and just 3% in small-cap which gives it a balanced outlook in terms of growth and risk.
It has delivered returns at the rate of 16.49% per year for the last 5 years which makes it quite attractive. (as of May 31, 2019).
Mirae Asset Great Consumer Fund: This fund is again a consumption centric thematic fund which has delivered annual returns at 15.67% in last 5 years. The fund has allocated about 35% of its assets to FMCG sector while another 20% has been allocated to the financial sector.
If you look at the market cap wise asset allocation, it has allocated about 67% of its assets in large-cap, and 19% and 12% in mid-cap and small-cap respectively (as of May 31, 2019). Higher exposure to the large-cap sector makes the fund a relatively safer bet.
3. Regional Funds
These funds primarily invest in a specific geographical area across the globe. They invest in certain continents, countries, states where there is a good chance of high economic growth and facilitative business environment in the near future.
These funds are also called Offshore Funds which are essentially mutual fund schemes but invest their assets in the international market.
Some regional funds strategise as sector funds and invest in a particular industry in a particular region. Returns form this kind of investment will depend on how the industry performs in that particular region.
Things to Consider Before Investing in Specialty Funds
Speciality funds are a high-risk investment instrument, therefore, it becomes imperative to choose a proficient and experienced fund manager while investing in speciality funds. One should carefully analyse the past year’s performance of the fund and decide wisely. Although past year records doesn’t guarantee best returns, it is one of the most important parameters while choosing the fund to invest in.
One should also remember that it will be better to have a diversified investment portfolio. So if you want to take a bet on speciality funds, you should not invest all your assets in them, and choose different sectors for investment. This will add diversity to your portfolio, and reduce the overall risk.
Also Read: Best Mutual Funds to Invest in 2020