Technology Sector – One can invest in companies operating in various sectors in India. Energy, Materials, Healthcare, Financials, Consumer Discretionary etc. are few of these sectors.
Information Technology (IT) is one of the important sectors in India that is boosting country’s growth. IT sector is one of the few sectors that delivered amazing returns even during COVID-19 pandemic.
What is Technology Sector?
As the name suggest, technology sector includes companies that are engaged in activity related to electronics, software, artificial intelligence, computers etc. In short, it is related to Information Technology (IT).
How to invest in Technology Sector?
You can invest in different ways in Technology sector.
- Mutual Fund
- Direct Stocks
- Information Technology (IT) Index
- Exchange Traded Funds (IT)
1. Mutual Funds:
This is one of the easiest ways to invest in IT sector. Investing in IT through Mutual Funds means investing in Mutual Funds that invest most of the money in IT stocks. However, one has to keep in mind that Sectoral mutual funds are equity funds that allocate major chunk of money (at least 80%) in one sector, in this case IT sector.
For instance, an IT sector fund invests only in IT companies, a Pharma sector fund only in pharmaceutical and so on. Hence, sector funds in general are riskiest.
To invest in any sector fund,
Points to remember:
- Portfolio should be diversified across all the sectors. Otherwise if the one sector faces difficult times, so will your investments
- One should not invest more than 10% of the portfolio in the sector funds.
- Be ready to invest at least 7+ year
Few Top IT Mutual Funds to invest:
- TATA Digital India Fund
- ICICI Prudential Technology Fund
- Aditya Birla Sun Life Digital India Fund
- SBI Technology Opportunities Fund
- Franklin India Technology Fund
2. Direct Stocks:
Second popular way of investment is IT stocks. Investing directly in IT stocks through BSE or NSE is a convenient. However, it is convenient for those who understand stock market and can dedicate time in reviewing, have knowledge & have higher risk appetite.
3. Information Technology (IT) Index:
By definition, an index is a group or basket of securities, derivatives, or other financial instruments that represents and measures the performance of a specific market, asset class, market sector, or investment strategy. NIFTY Bank is a basket having stocks of banking sector, NIFTY Healthcare tracks healthcare stocks in India.
Investors can invest in Index Mutual Funds and the said specific index as well. Index Mutual Fund imitates the underlying benchmark index.
For example, ICICI Prudential NIFTY IT Index Mutual Fund will replicate the portfolio of Nifty IT Index. You can invest through Systematic Investment Plan (SIP) or lump sum in sectoral Mutual Funds.
4. Exchange Traded Funds (IT):
Another way to invest in Information Technology sector is through ETF or Exchange Traded Funds.
An exchange-traded fund (ETF) operates in similar way like a mutual fund. However, the difference is ETF can be purchased or sold on stock exchange the same way that a regular stock can. That means share price of ETF fluctuates all day as the ETF is bought and sold.
ETF can track an index, a commodity, bonds, or a basket of assets like an index mutual fund. Nippon India ETF Nifty IT is the example of IT ETF. Being possessively managed, Nippon India ETF Nifty IT tracks the NIFTY IT index.
Let’s understand important factors before starting investment in Technology Sector (IT):
· Size of the Company and scope of Services:
IT Companies offers many services related to software & hardware, Network infrastructure & security, data storage & management, cybersecurity etc. These services are required in every company belonging to different sector. Investor must discover whether the businesses offer a wide range of services that can contribute to the overall growth of the IT business and to that particular company.
If the services offered by the companies are consistent and have a scope of development, investing in such company stocks will yield greater returns if you invest enough time.
· Depreciation of Indian Currency
As can be seen clearly, over the past few years, rupee has been depreciating against both dollar and euro. Being an export-led, IT industry in India has been a beneficiary of the situation of rupee depreciation. Most of the business of Indian IT companies is generated from the US, followed by Europe. So, when the US dollar appreciates, Indian IT companies makes profits from forex gains.
· Fundamentals & Valuation:
Investors should evaluate the performance of the company over time and compare the same against its competitors using fundamentals such as Return on Equity (ROE), Price to Earnings ratio (P/E Ratio), Cash flow from Operations and profit margin. Financial & Fundamentally good stock can deal with challenging times and can deliver higher returns over a longer time frame.
Top 10 IT Stocks of Indian Stock Market are listed as under,
- Tata Consultancy Services Ltd.
- Infosys Ltd.
- HCL Tech Ltd.
- Wipro Ltd.
- Tech Mahindra Ltd.
- L&T Infotech Ltd.
- MindTree Ltd.
- Mphasis Ltd.
- Info Edge Ltd.
- L&T Technology Services. Ltd.
Investing in a particular sector or allocating major investment in one sector can be very risky. Sector investing is considered as riskiest. In Mutual Fun context, sectoral Funds are some of the riskiest Mutual Funds as they invest only in one sector and there is no sector diversification. The performance of your portfolio would depend on that particular sector. Sector investing is suitable only for experienced and professional investors, and even then, not more than 10% of the portfolio should get invested in sector funds.
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