Sectoral Funds - Overview 2025
Sector funds have become a sensation among the Indian investors who are interested in a certain growth sector in 2025. These mutual funds make investments mainly on stocks in one line of business of Information Technology, Banking, Pharma or Infrastructure. The concept is easy to comprehend; when a market is expected to do well, a sector fund tries to reflect that growth which may be higher in order to provide greater returns than diversified funds.
As India is experiencing rapid economic shifts, it is possible to see changes in the trend in the sectors in the year 2025. As an example, the Green Energy, Electric Vehicle and Digital Finance industries are attracting a large number of investors. Investors attempt to capture targeted opportunities by focusing on one industry, albeit at a cost. Sectoral funds possess a particular strategy and need not act in a similar fashion as broad-based equity funds or index funds.
We should know what is unique about these funds, what their major characteristics are and to whom they are most suitable.
What are the Major Characteristics of Sectoral Funds?
- Invest in equities and equity related instruments of one sector.
- Portfolio usually has 80 percent and above the allocation in the best companies of a single sector.
- The fund is proactively under the management of skilled fund managers.
- Both upside and downside have high potential.
- The majority of the sectoral funds in India are open-ended funds and are governed by the Securities and Exchange Board of India (SEBI).
The success of these funds is largely pegged on the fortunes of the selected industry.
People also ask
Which are the examples of sectoral funds in India?
The ICICI Prudential Technology Fund, Nippon India Pharma Fund, and SBI Banking and financial services fund are some of the popular sectoral funds in 2025.
The Sectoral Funds in the Indian context — How Do the Sectoral Funds Work?
Basically, by investing in a sectoral fund, your funds are combined with other investors and your funds are invested in buying shares of other companies in the same sector. The manager makes extensive research to select the most superior stocks in the industry and at times makes tactical decisions to maximise returns.
As an example, in case the Energy market is a good opportunity to invest in because of government subsidies to green power, sector funds in this area can experience the inflow of more investors. On the other hand, when the sector has head winds, it can experience a sharp fall in returns.
It is important to note that the sectoral funds are not similar to the thematic funds which can have a wide theme that cuts across different sectors.
Pros and Cons
Pros
- Precise exposure to high growth sectors.
- There is potential of increased returns amid sector booms.
- Operated by industry experts.
Cons
- Risky because it is not diversified.
- Unstable and periodical performance.
- Slumps in the sector can be damaging to portfolio.
Did you know?
The technology sectoral funds have outperformed the large-cap category by more than 5 percent on average in 2025 with a high volatility.
Who are the Investors in Sectoral Funds?
- Best suited to more advanced investors who are aware of the market cycles.
- Appropriate in case of individuals who are ready to risk more and gain more.
- Applicable to diversify a portfolio in case of having a core portfolio.
Think about the possibility of savings and financial objectives, the duration of investment, and the riskiness of investments before committing money, considering the potential declines and rises of sectoral investing. Diversified equity funds are typically more acceptable to beginners or conservative types of investors.
People also ask
Is sectoral mutual fund long range?
Sector funds may give high returns over the long run provided that you enter the sector at the appropriate time but may also perform dismally over a long period during the recession.
What Sectors Are Trending in Sectoral Funds 2025?
The history of development of India throws some of the sectors into the limelight. Among mutual fund investors in 2025, the discussions will center on the following sectors:
- Green Energy and Renewables - Government policy and climate targets inspired.
- Information Technology - The growth of AI, cloud computing, and digitalization.
- Banking and Financial services - Financial inclusion and fintech boom.
- Healthcare and Pharma - Increasing health knowledge and export.
- Infrastructure - Roads, highways, urbanisation drive.
The investor can choose one sector that is in line with the economic growth of India and this is very essential, however, sector fundamentals and any changes in regulation and policies must be monitored.
Expert views: Based on data in the mutual fund industry in early 2025, more than Rs 20,000 crore has been invested in the sectoral and thematic funds with Green Energy and Digital Finance being the best preferences.
Sectoral Funds in India Taxation
In India, sector funds are charged as equity funds.
- When it is held in excess of 12 months, capital gains exceeding 1 lakh get taxed at the rate of 10 percent (long-term capital gains tax).
- Capital gains (12 months or less) are subject to tax at 15 percent.
- The dividends that are received are subject to tax as per your tax slab.
Never stop and never forget to check the existing tax regulations or seek the advice of your financial partner.
Comparison Table: Diversified Equity Funds and Sectoral Funds
| Characteristics | Sectoral Funds | Diversified Equity Funds |
|---|---|---|
| Focus | Single sector | Multiple sectors |
| Risk | High | Moderate |
| Volatility | High | Lower |
| Possible gains | High (in case sector is on a rise) | Average/steady |
| Recommended to | Experienced investors | All investors |
| Minimal holding period | 3-5 years | 5+ years |
People also ask
Am I going to make a loss in sectoral funds?
Yes, because they address only one industry, a decline will result in huge losses.
Major Highlights of Sectoral Funds in India to 2025
- In sectoral funds, total assets under management are more than Rs 1 lakh crore in March 2025.
- The funds in the Green Energy sector and Technology were leading in the annual SIP inflows.
- The regulatory norms provide 80 percent minimum sector allocation.
- Large disparity in best and worst sectoral funds (more than 40 percent in 2025).
Did you know?
The top performing sectoral fund in India during FY2024-25 had a better than 38 percent and the lowest had a negative return of 8 percent.
Sectors: How to Select the Right Sector Fund
The choice of the sectoral fund that is best is associated with extensive research and knowledge.
Consider these factors:
- Sector perspective and state policy are in favor.
- History of fund manager in dealing with volatility in the sector.
- The expense ratio and entry exit loads.
- Past performance within a period of 3-5 years.
- Best investments and top holdings.
Do not follow-up what was done in the past only; analyze whether the industry has good prospects or not in the coming years.
Sectoral Funds Performance Trends during the Recent Years
There have been periodical cycles in sectoral funds in India in the past with the years of glittering returns and the years of abrupt corrections.
For example:
- In 2020-21, technology sector funds increased as a result of the adoption of digital, although it was less pronounced in 2022-23.
- Pharma funds experienced a boom, followed by a show of low performance.
- As NPA cycles pick up, banking sectoral funds are resuming vigour in 2025.
Before investing in the sector, it is important to monitor the macroeconomic and policy environment.
People also ask
How should the sectoral fund investment be?
The holding period of 3-5 years might be recommended as a way of riding the sector cycles.
Sectoral Funds Mistakes to Avoid
- Making investments on performance basis without researching the sector.
- Having an imbalanced allocation of the funds to a sector.
- Leaving the sector when it is in a downturn in panic.
- Lack of recognition of portfolio diversification.
Hold sectoral funds as a satellite or a portfolio tactical holding and not as the core holding.
Professionals Views:
There are too many examples of wealth managers in the future who recommend a 10-15 percent sectoral sector allocation to all of your equity.
SIP or Lump Sum — Which is Better in the Sectoral Funds?
Systematic Investment Plan (SIP) may be used to smooth out the price of purchasing at a bad time. The lump sum investment can however be successful provided there is a lot of conviction and the prospects of the sector are very good.
Both approaches have merit:
- SIP brings about discipline and minimization of timing risk.
- Lump sum maximises rewards in the event of an immediate effect on the sector due to investment.
It can be a combination of SIP and lump sum, depending on your research and willingness to take risks in respect of volatility.
Is NRIs Investment in India Sectoral Funds?
Non-resident Indians (NRIs) usually have the right to invest in Indian sector funds, and this is subject to regulatory regulations and KYC regulations. A lot of NRI would like to be exposed to the high-growth sectors of the Indian economy not found in their home markets.
But NRIs should not ignore currency risk, repatriation norms, as well as sector specific risks and invest.
What are the Highest Performing Sectoral Funds in 2025?
Although the past performance is not an assurance of future performance, there are certain funds that have performed better in 2024-25:
| Fund Name | 1 Year Returns (2025) |
|---|---|
| Axis Technology Sector Fund | 36.7 percent |
| SBI Green Energy Sector Fund | 33.2 percent |
| HDFC Banking and financial services fund | 31.8 percent |
| Nippon India Pharma Fund | 26.4 percent |
Market risks refer to the reversal of returns in a short time in case of a situation where the sector conditions change.
TLDR Quick Recap
- Sectoral funds are invested in stocks of one particular sector with the intention of high returns but are high-risk stocks.
- Best experienced investors who are knowledgeable about the sector and risk takers.
- Technology, Green Energy, BFSI, Pharma and Infrastructure are the favourites in 2025.
- Ideal, said best as an add-on to the portfolio, not as a core.
- Always do research on sector outlook, manager record and correspond with your financial goals.
People Also Ask FAQ
Q1: Is sectoral funds safe in 2025 SIP?
A1: SIP introduces discipline, but does not lower the risk in the sector. Balance: it is always best to balance using diversified funds.
Q2: What is the amount I would want to invest in sectoral funds?
A2: At best no more than 1/5 -1/10th of your total equity investment.
Q3: What are the documents required in order to invest in sectoral funds?
A3: PAN card, Aadhaar, KYC and bank information are normally compulsory.
Q4: Does sectoral funds have negative returns?
A4: Yes, in the case where the chosen sector performs poorly, the funds may record negative or lesser returns months or years.
Q5: How to exit a sectoral fund?
A5: You can redeem units pursuant to your AMC or mutual fund platform, and subject to exit load rules.
Q6: Does the market need to time investment in sectoral funds?
A6: Timing will help but it is risky, staggered investments such as SIP and sector awareness can offset risks.
Sources
- AMFI (Association of mutual funds in India) Data 2025
- SEBI Guidelines of mutual funds
- Business Standard Sectoral Fund Report 2025
- Mutual Funds Analysis 2025 — Economic Times
