Is it the right time to invest in Tech Funds?
By Akhil Chugh
Date June 5, 2021
Technology has been the story of the pandemic, from the unstoppable rise of online meeting conference tools to the growing popularity of online shopping. The pandemic resulted in people spending virtually all their time at home — working from home, exercising from home, being entertained from home, and shopping from home. Technology trend comes in all sorts of form, from pure technology companies to those making their money from advertising, and from online retailers to games developers.
The COVID-19 pandemic altered our world in many ways including the acceleration of digital transformation. With technology (tech) revolutionizing almost every aspect of our daily lives, especially in these pandemic times, this is the right time for investors to navigate the world of digital ubiquity via investing in technology funds.
What are Technology (Tech) Funds?
Technology Funds are a type of Sectoral Funds (invest in a specific sector such as Healthcare, Technology, etc.) that invest only in equities of technology and technology related companies which are expected to benefit from the development, advancement and use of technology. This includes tech-related businesses, such as:
- Computer hardware manufacturers
- Software manufacturers
- Electronics services
- Technology services
- Information technology
- Business data processing
- Entertainment streaming
- Artificial intelligence
- Cloud computing
Some examples of tech companies include Infosys, HCL, Mind Tree etc. Most of the companies in these funds operate in the domain of solving complex business challenges with breakthrough technical innovations with business across the globe.
Reasons to Invest in Tech Funds:
- IT is a tough industry for a layman to understand as new innovations are happening all the time. But Technology is one of the most promising sectors especially in current pandemic times with more industries & households opting for digital technologies. With Tech Funds, investors can gain access and exposure to dozens—or even hundreds—of technology stocks without spending the time on researching the stocks one by one.
- The outbreak of Covid-19 has forced a number of behavioural changes throughout societies across the globe, including how we work, shop and interact with others. These changes are accelerating the drive towards digitalization of business and consumer behaviour. As technology becomes more integrated into business processes and consumer behaviour, the sector has potential to grow enormously.
- Tech is at the dawn of a new era, a number of mega trends that could create tailwinds for tech-enabled sectors over the long term have emerged – cloud computing, artificial intelligence (AI), 5G and many more.
- Corporate spending on technology is expected to accelerate as many employees are not planning to return to an office full time. Many expect to now be “hybrid” — working part of the time from home and part of the time in the office. Companies will need to continue to spend on technology in order to enable employees to work from home at least part-time.
- Fintech is another theme that has gathered steam during the pandemic as more transactions became electronic.
- Indian IT sector earns majority of its revenue from US. The Biden government is being hailed as positive for the Indian IT sector which expects liberalised immigration laws and visa programmes under the new administration resulting in ease of business for Indian IT firms. Factors such as corporate tax cut in U.S. and the resultant higher cash flows has led to U.S. firms to expand their spend on software/digitalisation which in turn has benefited Indian IT firms so far and is expected to continue in future as well.
Past SIP Performance of Top Technology Funds
Key Takeaways from Net Brokers:
- With technology (tech) revolutionizing almost every aspect of our daily lives, especially in these pandemic times, this is the right time for investors to navigate the world of digital ubiquity via investing in technology funds.
- Net Brokers believes Technology will be an integral part of the pandemic solution during the current crisis and will continue to lead over the long run in a post-COVID world. Investors should capitalise on this growth opportunity by investing around 5-10% of their portfolio in ‘Tech’ Funds with a minimum investment horizon of 10 years.
- As with all the sectoral funds, Tech funds has its own set of risks ranging from currency risk to regulatory risk. To mitigate the volatility associated with such funds, Net Brokers strongly suggests investors to opt for SIP route while making investments in tech funds.
Before picking the Technology fund, investors should ensure that the scheme is aligned with their investment objective, risk appetite & personalized asset allocation plan.
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