As of June 2024, technology sector-based mutual funds in India were offering an average return of 6.45%. The tech sector is a very promising sector in India that can help you considerably grow your earnings over time. However, should you invest in this sector via SIP (systematic investment plan) or lump sum? Certain features of tech stocks indicate that choosing the SIP option would prove to be more beneficial for you.
SIP vs lump sum mutual fund – which one to choose while investing in the tech sector?
Two key factors that you must consider before investing in the tech sector are – volatility and diversification. Tech-based stocks are often volatile and unpredictable. These stocks also invest in several tech companies which puts your portfolio at the risk of less diversification. An effective solution to these two problems is investing via SIP. SIPs allow you to purchase stocks when their prices are low and sell them when their prices are high – which is known as “Rupee-Cost Averaging”. You can also diversify your investment portfolio by choosing the SIP mode of investment. Certain other features of tech funds make them more suitable for the SIP mode –
- Tech sector stocks are suitable for experienced investors: If you are a first-time investor who wishes to invest in the tech sector, the SIP mode can help you do so effectively. You can also rely on the experience of the fund manager to choose the right stocks for investment.
- They are most suitable for a long-term investment horizon: SIPs help you invest consistently for the long term, thereby helping you benefit from the power of compounding. Goal-based investing in tech mutual funds via SIP can help you earn significant returns in the long term.
Which points must you consider when investing in the technology sector?
Here are the points that you should consider before investing in the technology sector –
- Account for the instability in the sector: As mentioned earlier, the tech sector can be extremely volatile and unpredictable. You should account for this instability while investing.
- Be sure to diversify your mutual fund portfolio: You should effectively use your SIP investments to diversify your portfolio.
- Assess the fund manager’s expertise: You must analyse the past performance of the mutual fund and also assess the fund manager’s expertise before investing in a tech-based fund.
- Check the expense ratio: You should then compare the expense ratios of different technology mutual funds. Generally, an actively managed fund is more expensive than a passively managed fund.
- Use a mutual fund SIP calculator: Finally, you must use a mutual fund SIP calculator while comparing funds online. Doing so can help you choose the best tech mutual fund online.
In conclusion
SIP investments are ideal if you wish to invest in the tech sector via mutual funds. You must research funds online, compare them using a mutual fund calculator, assess the fund manager’s expertise, and only then select a fund. You should also go through expense ratios while comparing these funds online.