6 Best Mutual Fund Types to Benefit During Modi's Third Term

The NDA alliance, under BJP’s leadership, has once again won in the 2024 general election. Hence, setting up another term for the government to pursue its policies while making investments in various sectors. Growth in these sectors will also promote the growth of the best mutual funds in these sectors. 

In this article, we will share about the best mutual funds types to invest into, along with the best fund names. 

Which Sectors Inspire Hope For Investors?

Past performances of mutual funds set the stage for the future investments. Thus, investors are keeping a keen eye on which sectors of the Indian economy may see the most growth in the upcoming years. 

There are 6 sectors in which you can find the best mutual funds types to invest into with mutual funds name. These include defence, manufacturing, infrastructure, banking & financial services, technology, and healthcare and pharmaceutical sectors. 

6 Best Mutual Fund Types to Benefit During Modi's Third Term

For Modi’s third term as India’s Prime Minister, the following are the mutual funds that could witness significant growth and potentially good returns. 

1. Defence Fund

India encounters challenges every now and then due to its extensive borders and complex geopolitical positioning. Thus, the current government is also making significant investments in modernising military equipment and prioritising domestic production, as seen in initiatives such as “Atmanirbhar Bharat”. 

As of now, only the HDFC Defence Fund targets this mutual fund sector in India. This mutual fund was introduced by HDFC Mutual Fund in June 2023, and exclusively targets companies linked with the Indian defence sector. Despite the fund’s impressive performance, critics say that it is a “very high risk” fund because of its focus on a particular sector. 

Another mutual fund in the defence sector is the Motilal Oswal Nifty India Defense Index Fund. This fund was introduced very recently, in June 2024 itself. 

2. Manufacturing Funds

Manufacturing funds are an appealing choice for investors who are looking forward to capitalising on India's growing industrial industry. The manufacturing industry is meant to expand in the future with initiatives like “Make in India”, potentially giving significant returns to the investors.

These funds have a diverse investment portfolio as they invest in several manufacturing segments. Actively managed by experienced portfolio managers, manufacturing funds depend on economic cycles to an extent. A slowdown in the cycle can directly impact fund returns. 

Because some manufacturing funds in India are relatively new, they don't offer much historical performance data to analyse. Furthermore, manufacturing equities are more volatile than the broader market and thus, leading to variations in the fund's value. 

While there is a long list of best mutual funds in the manufacturing industry to choose from, the table below shows a short list of manufacturing funds along with their 5-year returns. 

The most popular factor to evaluate the performance of Indian manufacturing funds is the Nifty India Manufacturing TRI (Total Return Index). This index is specifically used to track the performance of companies in the manufacturing sector. However, the TRI version can show you the performance of these funds in a more comprehensive manner.

The Nifty India Manufacturing TRI includes companies from the Nifty 100, Nifty Midcap 150, and Nifty Smallcap 50 and gives weight to each stock according to its free-float market capitalization. Therefore, the bigger firms get the most weight from this index. 

3. Infrastructure Funds

India's commitment to infrastructure development gives a new rise to infrastructure- focused mutual funds. Over the last 10 years, the government has consistently focused on projects such as roads, bridges, trains, and power grids. Additionally, people moving to urban areas have given demand for more infrastructure in cities, including houses, transportation, and sanitary services. 

Infrastructure funds invest in companies that work in the construction, building materials, engineering and other infrastructure-related industries that are well positioned. These funds invest in various segments of the infrastructure industry, providing a diversified investment portfolio within the industry. Infrastructure projects are also long-term in nature and thus, these funds have the potential to see significant long-term capital growth and returns. 

The table below shows the performance of various infrastructure funds as of 2024:

The S&P BSE India Infrastructure TRI is known as a widely recognized benchmark to monitor the total return performance of companies in the infrastructure industry. These companies are engaged in various infrastructure segments such as construction, power, transportation, and real estate, and thus, the index provides a comprehensive analysis of the funds’ performances. 

4. Banking & Financial Services Funds

The banking in financial services industry in India is facing a rapid change due to rising customer demands, changes in government policies, and technology improvements. Open banking laws are leading to collaboration between fintech companies and banks to develop financial solutions for people. On the other hand, banks are expanding their reach in rural areas by investing in mobile banking apps and online account opening services. 

The RBI has granted new licenses for different banking models such as payment banks and small finance banks (SFBs) in order to enhance financial inclusion. Investment in banking and financial services funds is nothing new. However, not all funds have performed to their finest level. 

NIFTY Financial Services Index (India) is the primary benchmark used for banking and financial services funds. The index looks over the performance of prominent companies within the banking, financial services, and insurance sectors. The TRI version of this index also includes reinvested dividends to create a more comprehensive assessment. 

5. Technology Funds

As people and businesses are inclining towards technology, the need for IT services, software development, and other technological solutions is also growing. Thus, India is seeing an impressive growth in the tech sector. 

The “Digital India Initiative” has also played a crucial role in creating a strong digital infrastructure throughout the country with digital services and internet access. Furthermore, the “Make in India” campaign promotes a trained labor force for the production of hardware — which is extremely essential for the IT industry. Similarly, the “Startup India” initiative provides the resources and a support system to new businesses. 

All of this leads to a thriving tech industry in India, which can be seen in the best tech mutual funds. These funds invest in companies that work in various tech sectors such as software, hardware, internet services, and more. Here is a table of some of the top technology funds:

6. Pharma and Healthcare Funds

The recent pandemic and government initiatives have led the Indian healthcare and pharmaceutical sector to rise. Since the pandemic, there has been a rise in investments in the healthcare infrastructure, medical equipment, and research and development.

The healthcare and pharmaceutical funds in India make investments in a range of healthcare sectors such as: 

• Pharmaceutical businesses
• Healthcare facilities and hospitals
• Manufacturers of medical devices
• Diagnostic chains

The table below shows some of the best, top-performing funds:

Conclusion

What Modi’s third term as India’s Prime Minister brings — only time will tell. However, you can look for the best mutual funds and invest into them as per your risk appetite. Choose your funds wisely and if it suits you, go for a diversified investment portfolio.