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IT sector funds or technology funds are down 28% in this year till date. The schemes are down 19% in three months and 2.9% in a year, according to Value Research, a mutual fund tracking firm. It may not surprise many investors as everyone knows that the stock market is facing rough weather, and all sectors, including technology, are feeling the pressure. However, many investors want to know what will happen to their investments in these schemes.

According to mutual fund advisors, many investors started investing in IT funds in the last two to three years. IT schemes got a major boost in the covid years as the transition to online mode by the world was supposed to help IT companies rake in the money. Also, a new theory started gaining momentum that investors need not be scared of IT funds. Just look at the consistency shown by IT sector funds in the last few years, said the fans.

To be fair, IT sector schemes indeed has helped investors to create wealth over a long period of time. For example, the category generated 19.53% in 10 years. However, investors were abandoning the old advice of investing only a small part of the corpus in IT schemes (or any thematic or sector schemes, for that matter). New theories were gaining currency on the back of an easy money policy and an unprecedented scenario presented by the pandemic.

However, the tide has turned with global economies coming under historically high inflation. In the US, for example, inflation is 40-year high. This has raised fears that the central bank may be forced to opt for steeper rate hikes to contain the inflationary pressure in the economy. There are also concerns that steeper rate hikes may hurt growth and possibly the economy may get into a recession. If these fears come true, companies will be forced to cut IT budgets.

Mutual fund managers concede that IT schemes come under pressure but they dismiss all doomsday predictions. They believe that the economies are unlikely to cut IT spending drastically because nobody wants to risk another pandemic like scenario. Many companies and economies were least prepared to face the challenges in the covid era, they don’t want a similar situation in future.

According to mutual fund advisors, investors can invest or continue to invest in IT schemes provided they follow certain protocols. One, sector schemes like IT funds are meant for sophisticated investors who understand the market and the particular sector well. If you are new to mutual funds or don’t follow IT sector, you should not invest in these schemes. Invest in a good flexi cap scheme to take advantage of a sector or theme that is doing well. A good flexi cap scheme will have exposure to sectors and themes in fashion. Even seasoned investors should limit their exposure to sector schemes, including IT schemes. Most mutual fund advisors ask investors to limit their investment to 10-20%.

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