Shyam Prakash Jain, Ajmer, Rajasthan
Before we understand what are manufacturing mutual funds we should first understand what are sectoral mutual funds. Sectoral mutual funds are a type of equity mutual fund that invests in a specific sector or industry of the economy, such as banking, technology, pharma, energy, etc. These funds aim to capitalise on the growth potential and opportunities of a particular sector by investing in the stocks of the companies belonging to that sector.
According to SEBI guidelines, sectoral mutual funds have to invest at least 80% of their assets in equity and equity-related instruments of a particular sector. They can invest in companies of different sizes, from large-cap to mid-cap to small-cap, as long as they belong to the same sector. The remaining 20% of their assets can be invested in other sectors, debt instruments, money market instruments, etc.
Manufacturing mutual funds are mutual funds that invest predominantly in companies engaged in the manufacturing sector. The manufacturing sector comprises industries that produce goods using raw materials, machinery, and labour. Some examples of manufacturing industries are automobiles, chemicals, textiles, metals, pharmaceuticals, and electronics.
Manufacturing mutual funds can offer exposure to a diverse range of companies that benefit from the growth of the Indian economy, domestic consumption, and export demand. Manufacturing is one of the key drivers of economic development and employment generation in India.
Manufacturing mutual funds can also provide an opportunity to participate in the government's initiatives to boost the manufacturing sector, such as Make in India, Production Linked Incentive (PLI) scheme, and Atmanirbhar Bharat. These initiatives aim to enhance the competitiveness, quality, and innovation of the Indian manufacturing sector and attract foreign investment.
Manufacturing mutual funds are subject to market risk, which means that the value of the fund's investments may fluctuate due to changes in market conditions, such as demand and supply, interest rates, currency movements, inflation, etc. Manufacturing funds are also subject to sectoral risk, which means that the fund's performance may be affected by factors specific to the manufacturing sector, such as regulatory changes, technological disruptions, environmental issues, labour disputes, etc.
Manufacturing funds are classified as thematic funds by SEBI, which means that they have a narrowly defined investment focus and may not be suitable for all investors. Thematic funds tend to have higher volatility and lower diversification than diversified equity funds. Therefore, investors should have advanced knowledge of macro trends and be ready for the possibility of moderate to high losses in their investments even though the overall market is performing better.
There are a few factors that investors can consider while choosing a manufacturing mutual fund, such as:
Fund house: Investors should choose a fund house that has a good track record, reputation, and experience in managing equity funds.
Fund manager: Investors should check the credentials, qualifications, and performance history of the fund manager who is responsible for selecting and managing the fund's portfolio.
Fund size: Investors should look at the fund size or assets under management (AUM) of the fund. A fund with a large AUM may indicate investor confidence and stability, but it may also face challenges in finding suitable investment opportunities and managing liquidity. A fund with a small AUM may offer higher growth potential and flexibility, but it may also have higher operational costs and volatility.
Expense ratio: Investors should compare the expense ratio or annual fees charged by different funds. A lower expense ratio can help in saving costs and enhancing returns over time.
Performance: Investors should evaluate the past performance of the fund across different time periods and market cycles. They should also compare the fund's performance with its benchmark index and peer funds to assess its relative performance.
Risk-return profile: Investors should understand the risk-return profile of the fund and see if it matches their risk appetite and return expectations. They should also look at the fund's portfolio composition, sector allocation, stock selection, and concentration to gauge its risk exposure.
In conclusion, manufacturing mutual funds can be a suitable investment option for investors who have advanced knowledge of macro trends and prefer to take selective bets for higher returns compared to other equity funds. However, these investors should also be ready for the possibility of moderate to high losses in their investments even though the overall market is performing better. Moreover, these investors should invest only through the SIP route and have a long-term horizon of at least five years to benefit from the growth potential of the manufacturing sector.
Note: This is for informational purposes. Please speak to a financial advisor for detailed solutions to your questions.
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