Sectoral Funds vs. Diversified Funds: Which Type of Mutual Fund Is the Best Bet in Today’s Market?

Investing in sectoral and diversified funds is a prudent step in generating an all-round and diversified financial planning. These are two different approaches that come with a unique set of benefits and cater to your investment goals and risk appetite. 

Sectoral funds focus on specific sectors, whereas diversified funds distribute investments across a broad spectrum of assets. Each of these approaches carries its own perks and factors to consider, underlining the importance of investors comprehending the nuances and potential consequences of these investment alternatives.

You can calculate your returns from these investment options using a mutual fund calculator and decide which one to invest in, depending on your financial needs.

What is a sectoral fund?

Sectoral funds are investment vehicles primarily concentrated on the equities of companies within a specific industry or sector. While they encompass diverse capital sizes within their portfolio, their main emphasis lies in the chosen sector. 

Consequently, these funds can offer substantial returns during periods of robust sector growth, but they also entail heightened risk, as they are susceptible to market volatility.

What is a diversified fund?

They are mutual funds that focus on diversifying investments across various sectors, irrespective of the size or market capitalization. 

These funds aim at long-term capitalization through diversified investments to help achieve better returns during adverse market conditions. They have considerably less risk than specific other mutual fund categories, such as mid-cap and small-cap funds.

Which one to choose: Sectoral funds or Diversified funds?

You can choose the best mutual funds after analyzing and taking into account all the points written below:

  • Risk Tolerance

Sectoral funds come with elevated risk due to their focused exposure, whereas diversified funds provide a more conservative approach by spreading risk across a more comprehensive array of assets. Assessing your comfort with risk is essential when determining your investment approach.

  • Investment Goals

Your investment strategy should align with your financial objectives, time horizon, and investment goals. A sectoral fund may be the appropriate choice if you possess a particular sectoral outlook or require enhanced returns.

  • Research and Expertise

Sectoral funds demand an in-depth comprehension of the specific sector’s intricacies. If you lack expertise in a particular industry, opting for diversified funds managed by seasoned fund managers may be prudent. Using a mutual fund calculator, you can also compare and then choose the type of fund to invest in.

  • Diversification

Diversified funds are inherently built on diversification, which acts as a risk-mitigation strategy. If mitigating risk is your primary concern, diversified funds could be the more suitable option.

  • Market Conditions

It’s crucial to take into account the prevailing economic and market conditions. Sectoral funds can excel during specific economic cycles but may underperform during others. Diversified funds serve as a safeguard against such fluctuations.

Which are the best mutual funds for 2023?

  1. Quant small cap fund direct plan growth

This is best for investors looking to invest for three to four years, giving a return of 47.14% in 3 years.

  1. Quant infrastructure funds direct growth

This fund is suitable for investors with a broad knowledge of macro trends and who choose to take selective risks for higher returns than other equity funds, with a 43.41% return in 3 years.

  1. Axis small cap fund direct growth

The associated risk with this fund is higher than other funds, with a probability of high returns of 34.86% in 3 years.

How to invest in the best mutual funds?

I had an underlying capital which I wanted to invest for high returns; after proper research, I chose Bajaj Finserv to invest in the best mutual funds mentioned above. It is very easy to invest with them as they have a simple interface and provide a convenient way to invest.

Follow the steps written below:

  1. Download the application on your device. It is readily available on both Play Store as well as the App Store
  2. Sign up with your mobile number
  3. Go to the Mutual funds under the Investment Bazaar section
  4. Proceed as per your requirement


So, if you plan to invest with the expectation of high returns, choose the funds mentioned above and consider all the factors before going for either sectoral or diversified funds, depending on your financial needs and requirements.