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Invest in Top Technology Mutual Funds In 2022: High Return Mutual Funds In India

The digitisation theme has taken over globally

The Covid-19 pandemic led to lockdowns across the globe. People had to shift to digital modes for almost everything, including office work, ordering groceries, garments, food, etc. Information Technology (IT) made the digitisation of all these activities possible. Hence, since the Covid-19 pandemic, the demand for IT services has increased a lot. It has led to a big spurt in the shares of IT companies and the NAVs of technology mutual funds. This article focuses on how to invest in top technology mutual funds in 2022.

What are technology mutual funds?

Technology mutual funds or IT mutual funds are sectoral mutual funds that invest in shares of IT companies. As per SEBI guidelines, a sectoral fund is an open-ended equity scheme that has to invest a minimum of 80% of its total assets in equity and equity-related instruments of specific sector companies (IT sector in this case).

Best technology mutual funds to invest in-

Scheme name
(Direct Plan - Growth Option)
AUM
(Rs. crores)
1-year
(Absolute Returns)
3-years
(CAGR)
5-years
(CAGR)
Tata Digital India Fund5,03951.34%36.26%32.95%
ICICI Prudential Technology Fund7,79551.03%37.69%31.92%
Aditya Birla Sun Life Digital India Fund3,08543.87%36.41%30.95%
SBI Technologies Opportunities Fund2,31244.23%32.95%27.65%
Franklin India Technology Fund74118.86%27.41%23.89%

Who should invest in technology mutual funds?

Investors willing to allocate a small part of their investment portfolio to sectoral funds such as the IT sector may consider investing in technology mutual funds. But, please note that investing in a technology mutual fund will lead to sectoral concentration in your investment portfolio, which is the opposite of diversification, which most investment advisors recommend. So, if you are an aggressive investor with a high-risk appetite, you may invest some amount in an IT mutual fund scheme.

Taxation of technology mutual funds

For taxation purposes, technology mutual fund schemes are treated as equity schemes and taxed accordingly.

  • Short-term capital gains (STCG) tax: If you sell your technology mutual fund scheme units within twelve months of purchase, the capital gain will be classified as short-term capital gain (STCG). The short-term capital gain (STCG) tax will be levied at 15%.
  • Long-term capital gains (LTCG) tax: If you sell your technology mutual fund scheme units after twelve months of purchase, the capital gain will be classified as long-term capital gain (LTCG). Every financial year, the first Rs. 1 lakh long-term capital gain will be exempt from taxation. The incremental long-term capital gain above Rs. 1 lakh will be taxed at 10%.

Risks involved in technology mutual fund schemes

Technology mutual fund investors are exposed to equity risk and sector concentration risk within equity. All equity mutual funds, including technology mutual funds, are subject to market risks. Whenever there is an adverse event like recession, war, pandemic, political instability, inflation, etc., the entire market undergoes a correction. During such events, technology shares also sell-off along with the broader equity market. It leads to a fall in the NAVs of technology mutual funds.

Technology as a standalone sector is also vulnerable to a sell-off. For example, during the 2000 Dotcom Bubble burst, shares of technology companies saw a big fall. Such events can lead to a big fall in the NAV of technology mutual funds leading to losses for investors.

Return potential of technology funds

In 2021, most technology funds were among the best performers. The table in the above section shows how some of the technology mutual funds have given returns of around 30% CAGR in the last five years. These are excellent returns for investors of technology funds.

Since the start of the Covid-19 pandemic, the digitisation theme has gained a lot of momentum. It has led to a lot of new business for IT companies. As a result, IT companies have reported very good growth in their revenues and profit. It has led to a rise in the share prices of IT companies, resulting in handsome gains for investors of technology funds.

The future order book and deal pipeline for IT companies are very good for the foreseeable future. So, IT companies will continue to do well, which can lead to good returns for investors of technology mutual funds.

Advantages of technology mutual funds

The biggest advantage of a technology mutual fund is that it gives you an opportunity to ride the current digitisation wave. IT companies are sitting on huge order books, and the deal pipeline for the future is also very good. As IT companies execute existing orders and new orders, their revenues and profits will continue to grow at a healthy pace. It will boost the share prices of IT companies and the net asset value (NAV) of technology mutual funds.

If you invest in the best technology mutual fund, it has the potential to give you inflation-beating high returns and thus create wealth for you.

Reasons to invest in technology mutual fund schemes

Some of the reasons for investing in technology mutual funds schemes include:

  1. It gives you a minimum of 80% exposure to the IT sector, which is doing well currently and has the potential to continue to do well in the foreseeable future. Technology mutual funds have the potential to create long term wealth
  2. Favourable tax treatment of an equity mutual fund scheme

Asset allocation: Diversification is the key

A technology fund will give you exposure to only IT companies and hence has concentration risk. As per the asset allocation strategy, you should diversify within and outside the equity asset class. Within equities, your investment portfolio should have exposure to other sectors apart from the IT sector. You can do that by investing in diversified large, mid, and small-cap mutual fund schemes. Outside equities, you should diversify into debt, real estate, gold, etc

To start investing in IT mutual fund schemes as per your appropriate asset allocation, download the Glide Invest App from Google Play Store or Apple App Store and get started.

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