Why are sector funds considered riskier than diversified equity funds?
Sector funds hold at least 80% in one sector, so returns depend on that sector's cycle and timing matters.
The concept: Equity fund categories
SEBI groups open-ended schemes into equity, debt, hybrid, solution-oriented and other categories. Each fund house may offer only one scheme per category. The exceptions are index funds and ETFs on different indices, FoFs with different underlying funds, and sector or thematic funds in different sectors or themes. Passive vs active - Passive funds hold the index stocks in index weights. There is no stock selection, so no selection risk, and returns are in line with the index. - Active funds pick and time stocks to beat the index. They carry higher risk if the picks do not work.