How Diversified are Equity Mutual Funds?: A Deep Dive into Sector Allocation

According to data from SEBI, equity mutual funds allocate nearly 64% of their total assets under management (AUM) across five specific sectors. Notably, these allocations are far from evenly distributed, with one sector taking a significant lead.

Financial Services – Dominating the Landscape

The financial services sector stands tall as the dominant force in equity mutual fund investments, claiming a substantial 31.20% of the total equity MF AUM. This allocation reflects the importance of the financial sector in the Indian economy and the investment landscape.

A Glimpse into Other Key Allocations

While financial services lead the way, other sectors also play significant roles in the equity Mutual Fund universe:

• Consumer Discretionary: This sector holds the second-highest allocation at 10.60%, indicating its importance in the overall investment strategy.
• Information Technology: With a 9.80% allocation, the IT sector represents a notable portion of equity MF investments.
• Healthcare: Accounting for 6.10% of the total AUM, healthcare emerges as another sector of interest for mutual fund managers.
• Industrials: The industrial sector holds a 6.00% allocation, demonstrating its relevance in the equity MF landscape.

The Big Picture: Sector Allocation Summary

Here’s a summary of the sector-wise allocations:

Expert Insights:

Commenting on this allocation strategy, Christy Mathai, Fund Manager – Equity at Quantum MF, points out, “If we look at any index, narrow as well as broad-based, these sectors find a major representation there. For instance, the financial sector forms close to 42% of BSE Sensex and 31% of BSE 500 as of May 2023. Likewise, consumer discretionary, which comprises around 6% of BSE Sensex, has a 10% representation in BSE 500. Broadly speaking, these five sectors largely encompass the investment universe within which the fund managers pick and choose their portfolio.”

Rahul Singh, CIO – Equities at Tata MF, shares a similar perspective, stating, “Financial, consumption, and IT are a large part of the economy, thus a large part of indices and investment portfolios. However, portfolio creation goes beyond sectoral weights. It is more about evaluating the fundamentals and picking the right stock within these sectors.”

In conclusion, while sector allocations provide valuable insights, savvy fund managers look beyond these numbers to make informed investment decisions.