Analyzing the Performance of Sectoral Mutual Funds for AI and Technology in India

Introduction

A Sectoral Mutual Fund is a type of mutual fund that invests only in one specific sector of the economy. This means the fund manager picks companies belonging to a particular industry or sector, like technology, banking, pharma, energy, etc.

If you invest in a Technology Sector Fund, your money goes mostly into tech companies like TCS, Infosys, Wipro, or global giants like Microsoft, Apple, and Nvidia (if international exposure is allowed).

Types of Tech Mutual Funds

Performance Analysis of Technology-Focused Sectoral Mutual Funds

In India, technology-focused stocks are primarily represented through two major indices: the Nifty IT Index and the BSE Teck Index

Nifty IT is designed to reflect the behaviour of companies engaged in activities such as software development, hardware, IT infrastructure etc. The index comprises of 10 companies.

BSE TECk Index, on the other hand, has 27 constituents with a broader scope—it includes not only IT companies but also firms from telecom, media, and technology-enabled services, offering a more diversified view of the tech and communications landscape.

There are around 10 actively managed tech-focused sectoral mutual funds in India, but 4 of these were launched in the last 1 year. These funds primarily invest in IT and technology-related companies, and many of them track or benchmark against the Nifty IT or BSE TECk index.

Indian technology mutual funds are primarily mandated to invest in domestic equities, though some use SEBI’s overseas investment window for limited global exposure. Most funds like Aditya Birla Digital India, ICICI Prudential Technology, Franklin India Technology, SBI Technology Opportunities, and Tata Digital India focus on Indian IT services companies such as Infosys, TCS, HCL, Wipro, and Tech Mahindra. While these firms are domestically listed, a significant portion of their revenues comes from global markets, particularly the U.S., giving them indirect international exposure. A few schemes like Kotak Pioneer Fund also invest directly in global tech stocks—allocating a portion to indices like MSCI ACWI IT Index, thereby offering a blend of homegrown and global innovation.

3-Year vs 5-Year CAGR Returns: Who Outperformed?

Scheme Name	Benchmark	NAV Regular	NAV Direct	CAGR 3Y	CAGR 5Y
Aditya Birla Sun Life Digital India Fund	BSE Teck TRI	168.8600	189.7600	17.52%	27.58%
Franklin India Technology Fund	BSE Teck	504.7189	555.0197	25.63%	26.43%
ICICI Prudential Technology Fund	BSE Teck TRI	197.0200	218.8300	18.47%	31.94%
Kotak Pioneer Fund	85% Nifty 500 TRI + 15% MSCI ACWI Information Technology Index TRI	30.4090	33.2320	26.59%	28.96%
SBI Technology Opportunities Fund	BSE Teck TRI	212.7268	241.9981	22.55%	29.03%
Tata Digital India Fund	Nifty IT TRI	47.0158	54.6976	20.79%	30.58%

• Older funds like Franklin, ICICI, and SBI demonstrate strong 5-year CAGR, indicating their ability to sustain returns through multiple market cycles.

• Kotak Pioneer Fund, despite being the newest, shows one of the highest 3-year CAGRs, partly attributed to its hybrid benchmark capturing global tech trends and broader Indian equities.

• Tata Digital India Fund presents a well-balanced growth across both periods, aligning closely with the performance of the Nifty IT index.

• Aditya Birla SL Digital India Fund, while showing lower 3Y CAGR among peers, maintains a respectable 5Y CAGR above 27%, indicating relatively modest recent growth after a strong initial run.

SIP vs Lumpsum Performance During Tech Booms and Busts

Building on the 3-year vs 5-year CAGR analysis of technology mutual funds, it's evident that performance varies significantly depending on market cycles. These fluctuations are especially pronounced in the tech sector, which is highly sensitive to global macroeconomic trends. To further understand this, we examine how investment modes—SIP and Lumpsum—performed during major boom and bust periods.

Methodology

To evaluate the relative performance of lumpsum vs SIP investment strategies during different market cycles in the Indian technology sector, we employed the following approach:

1. Selection of Funds

Only tech-focused mutual funds that were active during the chosen boom and bust periods were considered. These funds were selected due to their long operating history and availability of NAV data for past market cycles.

2. Investment Assumptions

• Lumpsum Investment A fixed amount of ₹10,000 was invested as a one-time lumpsum at the beginning of each selected market phase (e.g., January 2003, January 2008, March 2020).The performance was measured by calculating the Compound Annual Growth Rate (CAGR) from the date of investment to a fixed end date.

  
  

• Systematic Investment Plan (SIP) A recurring investment of ₹1,000 per month was made over the duration of the boom or bust cycle. For instance, in a 5-year boom period, ₹1,000 was invested every month for 60 months. The performance of the SIP was evaluated using Extended Internal Rate of Return (XIRR).

  
  

3. Performance Metrics Explained

• CAGR (Compound Annual Growth Rate): CAGR is used to measure the average annual growth rate of a lump-sum investment over time, assuming profits are reinvested. It smoothens returns and shows how much the investment grew each year, compounded.

  
  

• XIRR (Extended Internal Rate of Return): XIRR accounts for irregular cash flows and is ideal for SIP investments, where equal amounts are invested at different times. It calculates the annualized return based on the actual investment dates and final value.

  
  

4. Data Source

NAV data for all mutual funds was collected from:

AMFI (Association of Mutual Funds in India)

Respective AMC websites

Scenario 1: Tech Boom (2003–2007)

This period marked one of India’s most significant economic expansions, with GDP growth averaging between 8–9%, supported by an infrastructure push, strong global liquidity, and a surge in IT/BPO exports. The BSE Teck Index, which tracks technology and telecom stocks, mirrored this economic optimism and saw substantial appreciation during these years.

Investment Performance Comparison of Tech Mutual Funds

Scenario 2: Bust (2008–2009 – Global Financial Crisis)

The 2008–2009 period was defined by the Global Financial Crisis (GFC), triggered by the collapse of Lehman Brothers. The crisis led to a widespread global demand contraction, liquidity crunch, and sharp corrections in equity markets worldwide. The BSE Teck Index, which had previously ridden the IT and telecom boom, witnessed a steep decline in this pePerformance ofPer riod.

Performance of Tech Mutual Funds during the 2008- 2010 Financial Crisis

Scenario 3: Bust (2020 – COVID-19 Pandemic)

The onset of the COVID-19 pandemic in early 2020 triggered a global health crisis and economic lockdowns, leading to a sharp and sudden correction in equity markets, including the technology sector. Investor sentiment collapsed in March 2020, resulting in a short-term market bust. However, unlike the GFC, this period was followed by a swift V-shaped recovery, especially in tech-related businesses that benefited from digital acceleration.

Performance of Tech Mutual Funds during the COVID-19 Pandemic

Scenario 4: Boom (2021 – Post-COVID Rebound)

The year 2021 marked a strong rebound in both the economy and equity markets following the COVID-19 disruption. Tech companies, particularly those enabling digital transformation, saw a surge in earnings and valuations. This led to a short-lived bull run in tech-focused mutual funds. However, this momentum began to fade toward late 2021 and into 2022 due to rising interest rates, inflation concerns, and global tech stock corrections.

Performance of Tech Mutual Funds Post COVID-19 Pandemic

Investor Suitability: Who Are These Funds Suitable For?

Technology mutual funds are a sectoral/thematic category, which inherently makes them high-risk, high-reward instruments. Based on portfolio composition, return profiles, and sensitivity to global macro trends, these funds may be more aligned with certain types of investors:

1. Suitable For:

• Experienced or aggressive investors with a higher risk tolerance, seeking to capitalize on sector-specific trends such as digital transformation, cloud computing, AI, or IT outsourcing.

• Investors with a long-term horizon (5+ years) who can withstand interim volatility and market cycles.

• Those aiming to diversify their equity portfolios through satellite allocations to high-growth sectors.

  
  

2. Not Suitable For:

• Conservative investors or those seeking stable, low volatility in returns.

• Investors with a short investment horizon or limited capacity to bear drawdowns during tech corrections.

• Individuals looking for broad market exposure, since these funds are not diversified

  across sectors and are heavily tilted toward IT and telecom.

  
  

3. Key Considerations:

• Cyclicality: Historical performance shows that tech funds are highly sensitive to global booms and busts, as seen during the 2008 crisis, the 2020 pandemic, and the 2021 rally.

• Valuation Risks: Entering at peak valuations can significantly impair returns, especially for lump-sum investors.

• SIP Advantage: SIPs tend to smooth entry points and help manage timing risk in such volatile sectors.

  
  

Disclaimer: This blog is intended for academic purposes only. It does not constitute investment advice or a recommendation to buy, sell, or hold any financial instruments. All mutual fund performance data is based on publicly available sources. Past performance is not indicative of future results. Investors are advised to consult with a SEBI-registered advisor before making investment decisions.