AUTOMOBILE MUTUAL FUNDS IN INDIA
Automobile Mutual Funds are thematic mutual funds which predominantly focus on investing in the Automobile industry and quite often include transport entities too. Investors who are specifically looking to gain exposure to this sector and willing to take up the required risk to take benefit from the booms in this industry can opt for these funds.
In this article we will talk about different aspects of Automobile Mutual Funds and gain a deeper understanding of the same. Let’s get started.
MERITS OF INVESTING IN AUTOMOBILES MUTUAL FUNDS
The following are the major advantages investors have while investing in these funds:
1. Diversified exposure:
Investors get exposure to a well managed portfolio which includes top performing securities of Indian Automobile entities. This adds to the diversification of the portfolio and also assures that the fund is professionally managed and supervised.
2. Better returns:
Investors get an opportunity and potential to earn returns which are above the set bar and can beat the benchmarks pretty easily. These mutual funds invest after doing vast research and constitute securities who have the potential to outperform the market.
3. Investment pan market cap:
It is focused on one specific sector but not one capitalization. It invests predominantly in automobile based shares but entities of all sizes varying from small and mid cap to large cap. It depends on different AMCs and schemes if they would invest a major chunk of the corpus in any one market cap or go forward with diversifying throughout.
Automobile funds as any sectoral fund is focused particularly on one sector. All sectors go through market volatilities and cycles and perform accordingly, and when a particular sector is booming, funds that focus on growth sectors give maximum returns and grow beyond the margin from the benchmark and other funds.
THINGS TO CONSIDER BEFORE INVESTING IN AUTOMOBILE FUNDS
1. Involved Costs:
There are different costs involved in funds such as entry and exit load , expense ratio etc. Investors must review these costs before going forward with investments.
2. Financial Goals:
Setting up a goal before investing is the foremost and most important decision to make. It is very significant to evaluate that the fund objective is aligned to the financial goals. If investors can analyse the automobile sector and are up for taking risk then they may invest in these funds as it is a high risk - high return fund.
3. Risk Profile:
The risk levels related with the Automobile sector funds are fairly high since they go forward with investing only in shares of one sector. These funds are expected to do well when this sector is on boom. Hence, these funds are suitable for aggressive investors and might bother investors with low risk appetite.
4. Investment tenure:
Since the risk of concentrations related with these funds is on the higher edge, it requires investors to have a long tenure of investment. Staying invested for an extended period of time will make sure that the risks are minimised and mitigated to a greater extent. It is always suggested to opt for these funds if your investment tenure is at least 5 years.
WHO SHOULD INVEST?
- Investors have a high risk appetite as the returns are solely dependent on the performance of a single sector which is Automobile.
- Investors having long term investment tenure (at least 5 to 7 years) as the equity securities are quite sensitive to market fluctuations in the short tenures.
- Before opting for investment in these funds, investors should do proper research and analysis of the future and current market situation and growth prospects of the companies in the funds and sector. The decision should be based on multiple factors related to the sector.
THE BOTTOM LINE
As on date in India, there are not many mutual funds specifically dedicated towards the Automobile theme. One of the reliable funds is the UTI Transportation and Logistics fund. In the near future, we can expect more fund houses and AMCs to come up and introduce interesting funds around this theme. For the time being, if investors are willing to take exposure to these stocks, they can go ahead with diversified equity funds offering the same kind of exposure through securities of automobile themed entities.