The whole world is running on the shoulders of technology, particularly, since the Corona pandemic. Technology has deeply penetrated into the fields of Communication, Health Care, and Finance to name a few that have closer relation with day to day human life. Henceforward, Information Technology (IT) would be the forefront where most of the innovations and breakthroughs would take place. The exponential technological advancement we witness today, with no doubt, is here to stay and going to drive human life and businesses on a long-term basis. 

With this rapid technological advancement comes lucrative investment opportunities since IT has turned into one of the key drivers of the global economy. Today, Digital Transformation is the buzzword among most of the enterprises all over the world. Small scale industries to larger corporations are embracing technology to enhance their productivity or at least to survive in the current disruptive digital environment. The demand for the stocks of the businesses focused on digital services, Industry 4.0, Artificial intelligence (AI), Machine Learning and Data Science are rising.

Most of us know about the digital technology revolution and how it is going to transform the world we live in. But only a very few know how to make their wealth grow along with this inevitable technological revolution. At times, even the experienced investors, fail to pick the right technology stocks to grow their wealth. This dilemma over technology equity investment has been taken away to a greater extent by Technology Funds, the privately pooled and professionally managed funds that focus on the equity of rapidly growing Information Technology (IT) companies.

The investment in IT related stocks or Technology Funds would be a wise investment decision. But like any other investments, they do come with risks. Technology funds are risky in nature as their performance solely depends on the performance of the IT business sector. On the brighter side, these Technology Mutual Funds can also deliver more than 100% returns in an investment timeframe of 3 to 5 years.

This article aims at giving an overview of the top five Technology Funds that have delivered double digit returns to investors in 2021-22 and a few factors to consider while investing in these Technology Funds.

ICICI Pru Technology Fund

Since its launch in March 2000, ICICI Pru Technology Fund has generated 1190% returns for the investors and in last year alone, it has delivered 134% returns. Credit Rating Information Services of India Limited (CRISIL) has given a three-star rating for this mutual fund.

Managed by expert fund managers, this fund has 88.38% of its capital allocation in Indian technology stocks of which 53.61% is in large cap stocks like Infosys, HCL, TCS and Tech Mahindra. The fund allocates the remaining 8.52% and 20.12% in mid-cap stocks and small-cap stocks respectively.

This Technology Fund that comes with a higher expense ratio is suitable for investors with up-to-date knowledge of macroeconomic trends and remains selective in picking up funds with higher returns compared to other Equity funds.

ICICI Pru Technology is not suitable for risk averse investors as it may be possible that the fund can bring moderate to heavy capital drawdowns in spite of better performance of the overall market.

Tata Digital India Fund

Tata Digital India Fund, another high performing technology fund, launched in December 2015 has generated 118% returns last year. 80% of the pooled investment of Tata Digital India Fund is allocated in direct equity of large-cap IT companies such as Infosys, L&T Infotech, HCL, Tech Mahindra and Persistent system.

Aditya Birla Sun Life Digital India Fund

Aditya Birla Sun Life Digital India Fund, a higher performing Technology Fund in the country, was launched in January 2013 and has been generating double digit returns since then. CRISIL has endowed the fund with a four-star rating.

Aditya Birla Sun Life Digital India Fund focuses primarily on large-cap Indian IT companies like Infosys, TCS, Tech Mahindra, HCL Technologies and Cyient. Last year, the returns from this fund stood at 113% while it has generated 210% returns for the last 5 years.

SBI Technology Opportunities Fund

SBI Technology Opportunities Fund, an open-ended direct equity scheme in the Technology sector, is from the stable of State Bank of India Mutual Funds. The fund which was launched in January 2013 has generated 94% return for the investor in last year alone.

SBI Technology Opportunities Fund comes with a slightly higher expense ratio. The fund allocates capital in Indian technology stocks as well as in international ones. Top technology stocks that have taken the major share of this fund include Infosys, TCS, HCL Technologies and Alphabet, the parent company of Google.

Franklin India Technology Fund

Launched in August 1998, Franklin India Technology Fund is one of the longest running Technology Funds in the country. The major investment objective of the fund is an above average capital appreciation through investments in fastest growing IT companies. Last year, Franklin India Technology Fund generated 74% returns for the investors.

This fund has major investments in large-cap IT companies like Infosys, HCL and TCS. Though this fund has delivered above average returns to the investors, it has been categorized as a risky fund by various investors and rating agencies.

The Major Factors to Consider When Investing in Technology Funds

The frequent boom and bust of technology companies will be a norm of the day in this Digital Age. The advent of disruptive technologies also adds fuel to the fire of risk in direct equity investments in the Technology sector. This simply means the technology funds are not for investors who are looking out for higher return generating lower risk investments. It is highly advisable that only the investors with higher risk profile should enter this investment arena.

Technology funds require a time frame of 5-7 years to generate higher returns. An investor should also be required to monitor the performance of these funds on a regular basis.

Picking out a mutual fund would be a difficult task to some investors. A little bit of research and understanding of one’s financial goals can solve this problem. Along with due diligence in selecting a mutual fund, an investor can also take up the service of an expert financial advisor. Or, if an investor prefers to go solo in this investment venture, it is highly advisable that he or she should take the Systematic Investment Plan (SIP) route towards Technology Funds.

Justin Raj

Alpha Research