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Sectoral funds invest in the stocks of a particular sector. So, banking sectoral funds will invest a majority of the funds in banking stocks. As per the SEBI guidelines, a minimum of 80% of the funds will be invested in banking stocks.
The objective of these funds is to generate maximum returns by focusing on and investing in the banking sector.
These funds are suitable for high-risk investors. We believe concentration risk is very high in any sectoral funds and the impact of the market cycle can be severe in this category. This category is suitable for informed investors who are bullish on the banking sector. You should have a solid understanding of the sector before you invest in such funds. Also, entry and exit timings matter in sectoral equity funds, so we can not define the ideal time horizon for any particular sectoral fund. You should not allocate more than 10% of your portfolio to any sectoral funds.