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Internet-focused funds invest in online businesses, but they carry more risk as they rely on fewer companies.
Most of these funds follow the Nifty India Internet Index and the BSE Internet Economy Index as their benchmarks.
Asset Management Companies (AMCs) are coming up with new categories of funds, diversifying into emerging sectors and new themes to cater to the needs of customers from different income groups. Amid a thriving mutual fund industry in recent years, many AMCs have come up with a new thematic fund to offer diversification and growth. One of the latest thematic funds to have caught the attention of AMCs and investors is the internet funds.
These funds are aimed at capitalising on the rapidly growing digital economy of India. These funds focus only on companies that do business online, like e-commerce, digital payments, online entertainment and health apps, among others.
However, before choosing an internet-themed fund, it is important to understand how this new category of mutual funds works. It’s also advisable to evaluate the risk-reward scenario before investing.
What Are Internet Funds?
Internet funds invest in companies that are part of the “internet economy.” This includes online e-commerce, shopping platforms, fintech firms, and digital service providers. These funds do not include traditional IT companies, software service providers and IT infrastructure firms.
Usually, internet funds are passively managed, meaning they follow a set index or list of companies rather than being managed by a fund manager. Most of these funds follow the Nifty India Internet Index and the BSE Internet Economy Index as their benchmarks.
These indices primarily track the performance of the Indian companies, which depend solely on digital platforms for their operations.
Each index tracks different types of companies, so where you invest makes a big difference. BSE Internet Economy Index includes companies from telecom, financial services, and consumer products or services sectors. On the other hand, the Nifty India Internet Index focuses more on consumer digital services and fintech.
So, depending on which fund you choose, you may get more exposure to a particular segment of the internet economy.
Some of the internet-themed funds are Edelweiss BSE Internet Economy Index Fund, Mirae Asset Nifty India Internet ETF and Groww Nifty India Internet ETF, among others.
What Makes These Funds Risky?
As per Money Control, internet funds usually invest in a small number of stocks, sometimes just around 20. That means they aren’t as diversified as regular equity mutual funds, which can spread risk across 50–100 companies. So, if one or two internet stocks don’t do well, it can affect the whole fund’s performance.
These funds could see sharp fluctuations due to global uncertainties and volatility in the broader market. Any sectoral slowdowns can also affect the performance of these funds.
Should You Invest?
If you believe in the growth of the online economy, these funds could be a good addition to your portfolio. But do not put all your money into one basket. Because they focus on a narrow theme, which could be riskier compared to other funds. These funds also offer lower diversification, which may pose a higher risk.
It is also worth noting that some strong tech companies, like traditional IT firms, are not part of these internet funds. So, you might miss out on good long-term performers if you invest only in internet-focused funds.
Key Things to Check Before Investing
– Which index does the fund follow? Make sure it fits your investment goals.
– How concentrated is the portfolio? Fewer companies could indicate a higher risk.
– Are the companies profitable or just growing fast? Some companies in the segment could be loss-making entities.
– Do you have a balanced portfolio? Use these funds as a fraction for diversification, but it’s advisable to avoid putting a substantial amount.
In short, internet funds offer a smart way to tap into the digital boom, but only if you understand the risks. Use them as a side bet in a well-diversified plan.
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al…Read More
A team of writers and reporters decodes vast terms of personal finance and making money matters simpler for you. From latest initial public offerings (IPOs) in the market to best investment options, we cover al… Read More
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