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Should You Include Manufacturing Funds in Your Portfolio?

Should You Include Manufacturing Funds in Your Portfolio?

As of March 2024, India’s manufacturing sector has reached a 16-year high, driven by a surge in new orders, an upturn in inventories and increased job creation. This robust growth presents a lucrative opportunity for investors looking to expand their portfolios.

If you aim to diversify or tap into the steady rise of the manufacturing sector, investing in manufacturing funds could be a smart move. However, it’s crucial to thoroughly understand manufacturing mutual funds before making any investment decisions.

Here, we explore everything you need to know about manufacturing funds, from what these are to whether you should include them in your investment portfolio.

What are Manufacturing Funds?

Manufacturing funds are thematic mutual funds. These types of funds focus on a particular theme or sector for investment. In this case, the focus is on investing in companies involved in manufacturing automobiles, electronics, chemicals and other products.

Manufacturing mutual funds have the flexibility to invest across market capitalisations (small-cap, mid-cap and large-cap) as long as their investments are in companies operating in the manufacturing sector.

Benefits of Investing in Manufacturing Funds

Here are some reasons why you should consider investing in manufacturing funds:

1. Offers high growth potential

Apart from being a key sector for the Indian economy, the manufacturing sector is also thriving currently, allowing it to offer high returns to investors.

2. Helps diversify your portfolio

Manufacturing mutual funds invest in various sectors within the manufacturing industry, spreading the investment risk across different stocks and reducing your reliance on a single sector’s performance.

3. Offer consistent returns

Manufacturing companies exhibit steady growth over time, making them consistent performers. As a result, investors can benefit from stable returns in the long run.

What are the Risks Associated with Manufacturing Funds?

Manufacturing funds have significant benefits. However, they also suffer from certain cons that investors must keep in mind when considering investing in them. Here are the risks associated with manufacturing funds:

1. Risk of concentration

While manufacturing funds diversify investment within the sector, they are still limited to the manufacturing industry. As a result, if the manufacturing sector experiences a downturn, it will impact the fund’s performance and investor returns.

2. Cyclicality of the sector

Cyclic macroeconomic factors such as currency movements, inflation, etc., play a role in the performance of manufacturing companies. As a result, these companies can experience periods of significant underperformance during economic downturns, such as recessions.

Should you Invest in Manufacturing Funds?

Now that you know the pros and cons of investing in manufacturing funds, let’s discuss who these funds are most suitable for.

1. Type of investor

Investors with an aggressive risk profile may consider investing in these funds. Manufacturing funds are ideal for seasoned investors with sufficient insight into specific sectors. Such investors are well placed to manage a degree of risk when aiming for high returns on their investment.

2. Risk appetite

Manufacturing funds typically perform in cycles. Hence, they might suffer from a significant period of underperformance. As a result, investors must have a moderate to high-risk tolerance.

3. Investment term

Investment in manufacturing funds should be made for at least five years, making it ideal for investors seeking a medium-term investment option.

Final Thoughts

Incorporating manufacturing mutual funds into your portfolio lets you tap into the country’s booming manufacturing sector. These funds not only offer high growth potential but also provide an excellent opportunity to diversify your investments, helping you create a well-balanced portfolio.

Selecting the right mutual funds is essential, but choosing a trusted financial partner is just as important to reach your financial goals. For a dependable platform, look no further than Tata Capital Wealth.

Our experts at Tata Capital Wealth guide you through the stock market with insights grounded in market intelligence and extensive research. Let us help you drive your wealth creation journey.

To learn more about our services, visit our website today!

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