Top Sectoral Mutual Funds to Invest in 2026
16 Jan 2026 8 mins Mutual Funds
As the Indian economy continues to evolve, the significance of sector mutual funds becomes increasingly evident. Investors are always on the lookout for opportunities to optimize their portfolios, particularly in sectors expected to outperform the market. This year, several sector and thematic mutual funds have gained traction, making them ideal candidates for those looking to enhance their investment strategies. For a seamless investment experience, consider exploring the best mutual funds available on specialized platforms.
Understanding Sector and Thematic Mutual Funds
Sector mutual funds are designed to invest in specific sectors of the economy, such as technology, healthcare, or manufacturing. Thematic funds, on the other hand, focus on broader investment themes that may span multiple sectors, such as sustainability or urbanization. Both types of funds can provide investors with targeted exposure to high-growth areas, but they also come with increased risk due to their concentrated nature.
The Appeal of Sectoral Mutual Funds
Investors are increasingly attracted to sectoral mutual funds due to their potential for higher returns. For instance, the technology sector has shown remarkable growth over the past few years, driven by advancements in digital transformation and e-commerce. According to a report by the Securities and Exchange Board of India (SEBI), the technology sector contributed significantly to the overall market returns in the last fiscal year.
Moreover, the healthcare sector has garnered attention following the pandemic, highlighting the importance of investing in healthcare-related companies. The Indian healthcare market is projected to reach USD 372 billion by 2022, growing at a CAGR of 22.87% from 2016 to 2022. This growth is driven by increasing health awareness, rising disposable incomes, and the government's focus on healthcare infrastructure, making healthcare sector funds an attractive investment option.
Top Sector Mutual Funds to Watch in 2023
As we delve into the best-performing sector mutual funds this year, it's essential to consider factors such as past performance, management quality, and market conditions. Here are some of the sector mutual funds that are worth your attention:
1. Axis Technology Fund
Category: Sectoral Mutual Fund
1-Year Return: 30%
Expense Ratio: 1.5%
Fund Manager: Jinesh Gopani
This fund primarily invests in companies from the technology sector, focusing on IT services, software, and e-commerce. The strong performance can be attributed to the increasing demand for digital solutions, especially as businesses continue to adopt cloud computing and AI technologies. Furthermore, the rapid growth of India's start-up ecosystem has further bolstered the technology sector, providing ample opportunities for growth.
2. SBI Healthcare Opportunities Fund
Category: Thematic Fund
1-Year Return: 28%
Expense Ratio: 1.2%
Fund Manager: R. Srinivasan
With the healthcare sector gaining prominence post-pandemic, this fund has capitalized on the growing demand for healthcare services, pharmaceuticals, and biotechnology. The fund's strategy includes investing in companies that are involved in medical devices, diagnostics, and health insurance, which are expected to experience sustained growth due to rising health consciousness among Indians. Additionally, government initiatives like the Ayushman Bharat Scheme are expected to further enhance the sector's growth potential.
3. ICICI Prudential Capital Goods Fund
Category: Sectoral Mutual Fund
1-Year Return: 25%
Expense Ratio: 1.6%
Fund Manager: Sankaran Naren
This fund focuses on capital goods and infrastructure, sectors that are anticipated to benefit from government initiatives aimed at boosting economic growth. The Indian government's commitment to infrastructure development, as reflected in the NITI Aayog's policy framework, is expected to drive demand for capital goods. Furthermore, the anticipated increase in private sector investment in infrastructure projects will likely enhance the fund's performance.
4. HDFC Infrastructure Fund
Category: Thematic Fund
1-Year Return: 27%
Expense Ratio: 1.5%
Fund Manager: Prashant Jain
With a focus on infrastructure development, this fund has been strategically positioned to benefit from various government projects and investments. The push for smart cities, renewable energy projects, and urban transportation development are key themes that the fund is likely to capitalize on. The Indian government's recent budget allocations for infrastructure development underline the importance of this sector, making it a promising area for investment.
5. Kotak Emerging Equity Fund
Category: Thematic Fund
1-Year Return: 29%
Expense Ratio: 1.3%
Fund Manager: Harsha Upadhyaya
This fund targets emerging sectors and companies that are likely to lead market trends in the coming years. By investing in sectors such as fintech, renewable energy, and consumer technology, the fund is well-positioned to benefit from the evolving landscape of the Indian economy. The rising trend of digital payments and the growing emphasis on sustainability provide a solid foundation for the fund's investment philosophy, making it an attractive choice for forward-thinking investors.
How to Choose the Right Sector Mutual Fund
Selecting the right sector mutual fund requires careful consideration of several factors:
Performance History: Look for funds with consistent returns over the past 3-5 years. Analyzing the fund's performance during various market cycles can provide insights into its resilience and management capability.
Expense Ratio: Lower expense ratios can significantly impact your net returns over time. A fund with a high expense ratio must outperform its peers by a substantial margin to deliver superior returns to investors.
Fund Manager Experience: Research the fund manager's track record and expertise in managing sectoral funds. A seasoned fund manager can navigate market volatility and identify high-potential investment opportunities.
Market Conditions: Analyze current market trends and economic forecasts that may impact sector performance. Understanding macroeconomic factors such as interest rates, inflation, and government policies can provide context for sector performance.
Seeking Professional Advice
Before making any investment decision, it’s wise to consult with a financial advisor. They can provide personalized insights based on your financial goals and risk appetite. A financial planner can also help you diversify your portfolio effectively, balancing sectoral investments with more stable options. Additionally, they can assist in rebalancing your portfolio as market conditions change, ensuring that you stay aligned with your investment objectives.
Sectoral Mutual Funds vs. Thematic Funds: Which is Right for You?
While both sectoral and thematic funds offer unique opportunities, they cater to different investor needs:
Sectoral Funds: Ideal for investors looking to capitalize on a specific sector's growth potential, but they come with higher volatility. This type of fund might suit risk-tolerant investors who are knowledgeable about specific industries.
Thematic Funds: Suitable for those who want to invest based on broader trends that might span multiple sectors, often with a long-term outlook. This could be a better fit for investors looking for a balanced approach to thematic investment strategies.
FAQs on Sector Mutual Funds
What are sector mutual funds?
Sector mutual funds invest in stocks of companies belonging to a specific sector, such as technology, healthcare, or finance. They aim to provide investors with concentrated exposure to sectors expected to perform well.
Are sector funds riskier than diversified mutual funds?
Yes, sector funds are generally riskier due to their concentrated investments, which can lead to higher volatility. However, they can also offer higher returns if the sector performs well.
How often should I review my sector fund investments?
It's advisable to review your investments at least annually or whenever there are significant market changes or shifts in your financial goals. Regular reviews can help ensure your investments remain aligned with your objectives.
Can I invest in multiple sector funds simultaneously?
Yes, diversifying across different sector funds can help mitigate risks associated with sector concentration. This strategy allows you to capitalize on various growth opportunities while managing overall portfolio risk.
What factors should I consider when investing in thematic funds?
Consider the fund's historical performance, management expertise, and alignment with your investment goals and risk tolerance. Additionally, evaluate the underlying themes and how they align with current and future market trends.
Key Takeaways
Sector mutual funds offer targeted investment opportunities in specific sectors, often leading to higher returns.
Consider factors like performance history, expense ratios, and market conditions when choosing funds.
Consult a financial advisor for personalized investment strategies tailored to your financial situation.
Diversifying across multiple sector or thematic funds can help manage risk while enhancing potential returns.
Are you ready to enhance your investment journey? Begin exploring sector mutual funds today and take a step towards a more diversified portfolio.
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Author - Abhishek Sonawane
Abhishek Sonawane, an MBA graduate from the prestigious Indian Institute of Management Visakhapatnam (IIMV), brings over ten years of experience in the finance domain. His extensive background includes various roles in financial management and strategy, providing him with a comprehensive understanding of the financial landscape. Abhishek’s expertise and dedication to financial education make him an authoritative voice in personal finance, helping readers make informed financial decisions.
Find the Best Mutual Funds for your every investment goal. Explore top mutual funds and start your SIP Today!
Find the Best Credit Card for your spending habits. Explore top credit cards and maximize your rewards.
Get a Personal Loan that fits your needs. Apply for loans from Rs 1000 to Rs 15 Lakhs with competitive rates.
Author - Abhishek Sonawane
Abhishek Sonawane, an MBA graduate from the prestigious Indian Institute of Management Visakhapatnam (IIMV), brings over ten years of experience in the finance domain. His extensive background includes various roles in financial management and strategy, providing him with a comprehensive understanding of the financial landscape. Abhishek’s expertise and dedication to financial education make him an authoritative voice in personal finance, helping readers make informed financial decisions.