In 2025, both Nifty 50 and BSE Sensex hovered close to highs but with high volatility. We have also seen a divergence in the performance of stocks from different sectors.
Under these circumstances, mutual fund investors are looking beyond classic diversified equity strategies. There is a lot of focus on opportunities in various sectoral and thematic funds.
As per data from AMFI, sectoral/thematic fund net inflows remained resilient at Rs 20.52 bn as of May 2025 despite volatile market conditions.
Interestingly, infrastructure and manufacturing sector funds saw a boost following the Union Budget 2024–25. This was because the government reaffirmed its intention to pursue capex-driven growth. This has generated interest in ‘Make in India’, defence, and logistic theme-based funds.
Conversely, the pharma and technology sectors, erstwhile investor favourites, have not delivered high returns. This is on the back of global headwinds such as shrinking IT spends and uncertainty about pharma exports to the US.
However, prudent investors who have long-term view on these sectors are taking advantage of the market volatility to build positions through SIPs.
Here are the best 3 sector mutual funds in India. We have shortlisted these funds on the basis of the 5-year rolling CAGR, the robust themes these funds are focused on, and the sustained performance across cycles.
#1 ICICI Pru Infrastructure Fund
ICICI Prudential Infrastructure Fund was launched in August 2005. It is one of the oldest and most stable performers in the sectoral fund space.
The fund is meant to capitalize on India’s infrastructure development by investing in companies associated with sectors like construction, capital goods, engineering, power, cement, logistics, and utilities.
The fund has a core allocation to large infra companies but also strategically includes mid and small-cap names with high growth potential.
The leading holdings are Larsen & Toubro (9.88%), Adani Ports and Special Economic Zone (4.46%), and NCC (3.65%).
As of May 2025, the leading sectoral exposure of the fund is infrastructure (17.83%), bank (9.90%), construction materials (8.43%), and capital goods (6.68%).
Performance has been stellar in this market cycle. In a 5-year period, the fund has registered a CAGR of 33.46%.
This reflects the growth of India’s infrastructure as well as the fund manager’s skill in pinpointing the major beneficiaries.
#2 Tata Digital India Fund
Tata Digital India Fund is a sectoral equity fund which invests in India’s fast-changing digital and information technology space.
The fund invests in stocks that facilitate, create, or are beneficiaries of the increasing adoption of technology across sectors—from software services and semiconductors to digital platforms and cybersecurity.
It has a focused portfolio that invests in scalable, export-oriented tech companies, complemented by niche players in digital payments, cloud infrastructure, and AI.
The largest holdings are Infosys (19.82%), Tata Consultancy Services (12.25%), and Tech Mahindra (9.62%).
Tata Digital India Fund is 80.64% exposed to the information technology sector, with a modest lean towards telecom and retail.
Its 5-year CAGR is 29.65%, which shows resilience against volatility in the global tech market and highlights India’s IT export momentum.
Risk metrics show disciplined fund management in the face of the sector’s natural volatility. Tata Digital India Fund has shown solid risk-adjusted returns as well as downside protection.
#3 SBI Healthcare Opportunities Fund
Established in July 1999, SBI Healthcare Opportunities Fund is among India’s oldest and most mature sectoral funds dedicated solely to the healthcare and pharma space.
The fund plans to ride long-term growth prospects in the space covering pharma, diagnostics, hospitals, biotech, and healthcare services both in India and internationally.
While large-cap pharma companies form the core of the portfolio, the fund also selectively invests in emerging players involved in diagnostics, API manufacturing, and health-tech platforms—providing a blend of stability and innovation.
As of May 2025, the fund holds major positions in Sun Pharmaceutical Industries (12.73%), Divi’s Laboratories (7.38%), and Max Healthcare Institute (6.40%).
88.44% of the portfolio is invested in drug makers, with the remainder spread across healthcare services, diagnostics, and medical equipment.
The fund has rallied with a 29.26% 5-year CAGR in 2025. This was due to a recovery in the hospital sector post-covid, enhanced government attention to the sector, and rising insurance coverage under Ayushman Bharat and PMABHIM.
Performance of Top 3 Sectoral Mutual Funds
Past performance is not an indicator of future returns.
This list is not exhaustive.
The securities quoted are for illustration only and are not recommendatory.
Rolling Returns in %. Direct Plan – Growth option considered
(Source: ACE MF)
Conclusion
Sectoral funds perform well for investors when there is a clear structural growth trend driving the stocks in it and when the investor accepts the high risk and long holding period these funds require.
Sectoral mutual funds are not for all—but for those who can complement sector insights with patience, these funds can deliver outperformance in focused bursts.
The secret is in positioning your sector choice to fit macro trends, being pragmatic regarding volatility, and remaining invested over cycles.
While historic returns might encourage some momentum chasing, the wise move is to invest over time in themes with enduring policy, structural, or global tailwinds.
The greater availability of passive sectoral funds and ETFs has also provided retail investors with a low-cost way to play on precise themes and enhancing accessibility. However, this calls for greater vigilance in following trends, valuations, and cycles.
Finally, sectoral funds are best used as a supplement to your core portfolio—not as a substitute. If you are convinced about India’s infrastructure boom, digital push, financial sector overhaul, or healthcare transformation, then there’s a sectoral fund investing in the same.
The key is to understand the sector and stay invested long enough to allow that sector/theme to play out to its full potential.
#Table Note: Data as of June 13, 2025.
“Mutual Fund investments are subject to market risks. Read all scheme-related documents carefully.”
Happy Investing.
Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here…
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