IT sector mutual funds offered 35% returns last year. Should you invest?

The technology sector mutual fund schemes have topped the performance chart last year. However, despite the robust 35 per cent annual returns, you may not have heard much about IT sector funds in the last year because mutual fund advisors have been asking investors to stay away from these funds in the last couple of years. Is it time to take a relook at these funds?

“There have been many positives for the sector in the last one year. The sector had attractive valuations compared to the other sections in the market. This coupled with rupee depreciation, weakening macros in India and better earnings by IT companies in India have pushed the sector up in last one year,” says Gopal Agrawal, chief investment officer, Tata Mutual Fund.

The IT sector had been struggling since there was a debate against H1B visas in the United States of America. This hit the basic structure of Indian IT industry. Tech giants in India, like Infosys, also went through a bad phase at the same time. Another reason for the IT downfall was the appreciation of Indian currency in the last three years and strong macros. IT, being an export-based sector, was impacted badly by the rupee appreciation.


However, the sector seems to have overcome these negative factors. The IT schemes that returned 7.64 per cent in the last three years, has offered 7.21 per cent in the last three months and 2.20 per cent in the last one week.

Fund managers believe that the sector is getting back to form. “I think the sector is getting normalised again. Part of the reason why the returns are looking superior is because the other sections of the market have done badly in the recent past. If you looked at the numbers in November last year, it would have been a different story,” says Anand Shah, chief investment officer, BNP Paribas Mutual Fund.

So should you invest and take advantage of the rise of the IT schemes or stay cautious? “IT is a sector which will give you comfort when the other sectors in the market are going down. It is necessarily a sector to diversify. Not more than that,” advises Anand Shah.

Gopal Agrawal believes that investors should definitely not stay away from IT funds but tread with caution. “Invest in IT schemes, but not more than five to 10 per cent of your portfolio. IT can be a good diversification option,” says Gopal Agrawal.