Sector funds can be alluring to retail investors, but they pose challenges in picking winners. Factors like regulatory changes, product launches, and market shifts influence sector attractiveness, making it hard for retail investors to navigate. Retail investors often base their sectoral investments on recent sector performance or media-driven narratives, which may not lead to optimal outcomes. The stock market’s forward-looking nature creates cycles of booms and busts across sectors, demanding timely entry and exit decisions. Sectoral funds have limitations due to their narrow mandates, forcing fund managers to invest within a specific sector without much flexibility for stock selection. A smarter strategy for retail investors is diversified portfolios managed by professionals who can adjust sector weights as market conditions change. Starting with broad-based options like ETFs or diversified equity mutual funds can spread risk effectively, while more experienced investors can consider a core-satellite strategy for a balanced approach to sectoral investments.
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