June 07 , 2012
A sector fund is a mutual fund that has a mandate to invest in only a set of pre-decided sectors. For instance, a fund may invest only in pharmaceutical companies or only in auto companies. It need not strictly be one sector - it could be a theme too. Public Sector Companies is one theme, as is Indian Infrastructure.
By their very nature, sectors funds are slightly more risky than the broad-based diversified funds. But if chosen well, they can give higher returns too. You would use this if you are an experienced investor, who believes a particular sector will do well, but lack time to do detailed research on stocks. But if you are a beginner in investing, you would rather steer clear of sector funds, and stick to diversified mutual funds instead.