NEW DELHI: Retail investor interest in thematic and sector funds have been increasing as some of these have generated good historical returns. For instance, investor interest in international equity funds zoomed after it became the top performing category during the past year. A global market rally and fall in the value of the rupee against the dollar, which enhanced returns for domestic investors, are the main reasons for their outperformance. Similarly, banking and financial services funds have been doing well for the past three years, mostly because of the pull by retail lenders like HDFC Bank and Kotak Mahindra Bank. At the category average level, banking and financial services sector funds generated a CAGR of 15.64% and 15.54% respectively for 1-year and 3-year holding periods. Chart topping performance by energy funds during the past five years is mostly because of the rally in Reliance Industries.
Never chase historical returns
Experts say chasing historical returns is a recipe for disaster. The retail investors who chased high historical returns in mid- and small-cap schemes and invested in them during 2017-18 are still licking their wounds. This problem gets aggravated in concentrated bets like sector and thematic funds. For example, investors who were lured to invest in IT funds in 2000 or infrastructure funds during 2007 also lost heavily.
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