What is Tata Digital India Fund?
Tata
Digital India Fund is a sectoral mutual fund scheme that invests in IT and IT
related companies.
It invests in both domestic and international markets with no restriction on market caps.
For
taxation purposes it is considered an equity fund.
|
Fund |
Tata Digital India
Fund |
|
Category |
Sectoral |
|
AUM (Rs Cr) |
4,900 cr (As on
31/12/2021) |
|
Fund Manager |
Ms Meeta Shetty Mr Venkat Samala |
|
Benchmark |
S&P BSE IT TRI |
What is a Sectoral Mutual Fund?
A
Sectoral Mutual Fund as the name suggests invests only in one particular
sector.
It is
less diversified than a Thematic Mutual Fund since it is restricted to just one
particular sector.
Think
of Sports as a theme and various disciplines like Football and Basketball like
sectors. Sports constitute both Football and Basketball but Football does not
constitute Basketball and Basketball does not constitute Football.
In
the same manner a Thematic Mutual Fund constitute various sectors but it is not
necessary that various sectors fall within the same theme.
Think
of a Pharma mutual fund scheme, it can only invest in companies belonging to
the pharmaceutical sector.
Types of Sectoral Mutual Funds
Finance
This includes companies belonging to the popularly known as
BFSI sector (Banking,Financial Services and Insurance companies).
Digital
This includes companies belonging to the Information
Technology space.
Consumption
This includes FMCG companies involved in products like
foods, personal care, daily care, etc.
Pharma & Healthcare
Certain funds only invest in Pharmaceutical companies
whereas certain funds are inclusive of allied healthcare companies too like
hospitals, biotechnology, etc.
Features of Tata Digital India Fund
Tata Digital India Fund looks for healthy opportunities in
the IT and IT related spaces.
The fund applies a Growth at a Reasonable Price (GARP)
approach.
The fund invests in both the domestic as well as
international markets thereby being a diversified IT fund.
The fund has no market restrictions and can invest across
all market caps.
Should you invest in Tata Digital India Fund?
If you do, consider the following points before diving in:
Minimal Exposure
A sectoral mutual fund should have limited exposure in your
mutual fund portfolio.
It should be a part of your satellite portfolio and never be
a part of your core portfolio.
Understanding the sector
Only invest if you do and can understand the sector well.
This involves being able to understand reasons behind past
performances as well as the ability to forecast future prospects.
This does not involve investing blindly on past performances.
Long Duration
You should consider a sectoral mutual fund scheme only if
you are ready to stay invested for the long haul.
This means staying invested for seven years or more.
This is important since sectors go through various phases
and cycles.
You should be able to go through all phases and cycles to
make meaningful returns.
Entering the fund
As previously mentioned, sectors go through various phases and
cycles.
If you enter a thematic or sectoral mutual fund scheme
during a peak, you may most likely be sitting on moderate returns for a considerable amount of time.
Additional reading: Click Here to read on how to invest in mutual funds
Tata Digital India Fund Portfolio
As expected the fund was heavily invested in Technology
(75%) followed by communication and services (as on 31/12/21).
The COVID pandemic has affected the IT industry in new ways
too.
It has led to positive demand growth due to digital
transformation.
Work from home has meant a drop in travel expenses but
supply has been on the rise.
There is fear of over burdening and deterioration in quality
thereby leading to a fall in margins too.
Adaptability to the ever changing scenario will be the key
to both survival as well as growth.
When are Thematic and Sectoral Funds launched?
It is generally seen that a Fund House would launch a scheme if
it does not currently have one in a category. With SEBI not permitting a Fund
House to have more than two schemes in the same category, the timing of the
launch becomes all the more important considering that major business is
expected and driven during a NFO.
With Thematic and Sectoral Funds though, the timing of them is
very much dependent on the narrative that is propounded.
For example look at the launch dates of these IT based Mutual
Fund Schemes.
|
Scheme |
Launch Date |
|
Aditya Birla Sun Life Digital Fund |
Jan -00 |
|
Franklin India Technology Fund |
Aug -98 |
|
ICICI Prudential Technology Fund |
Mar -00 |
|
SBI Technology Opportunities Fund |
July -99 |
The
reason for all these Funds being launched between 1998 and 2000 is because this
was supposed to be the time of the IT boom in India.
The
IT sector in 1998 contributed 1.2% to India’s GDP. The TIDEL Park, the then
largest IT park in Asia was opened in the year 2000.
The
Information Technology Act was also passed in the year 2000 which paved the way
for legal procedures for electronics transactions and e-commerce.
All
of the above factors did help in creating a positive market environment for the
IT sector to boom and various AMC’s were not going to be left behind to milk
this.
This
therefore led to the launch of several IT based Mutual Fund Schemes in the
space of just 2 years.
We
have thus seen how the positive scenario around one particular sector helped in
driving investors towards a particular Mutual Fund Scheme.
Taxation on Tata Digital
India Fund
For the purpose of taxation, Tata Digital India fund
qualifies as an equity fund and the taxation charges applicable on it are as
follows:
LTCG
Long term capital gains tax better known as LTCG is applied
on any equity mutual fund when the gains from an equity mutual fund which is
held for more than a year is more than 1 lakh.
The LTCG rate is 10%.
Capital gains up to 1 lakh are exempt for taxes.
There is no indexation benefit when calculating LTCG.
STCG
Short term capital gains tax better known as STCG is applied
on gains from an equity mutual fund which is held for 12 months or less.
The STCG rate is 15%.
There is no ceiling benefit in STCG like the 1 lakh ceiling
in LTCG.
STCG is charged on from Re 1.
When should you Enter and Exit in Thematic and Sectoral Funds?
The
reason for this is that these funds invest in cyclical businesses and ergo they
themselves are cyclical funds. Take the example of real estate, you must have
often read or heard the real sector is down or the real sector is
booming.
This
is not to say that other equity funds do not have their own volatility but with
thematic and sectoral funds, volatility is more frequent and at a higher level.
If
you enter a thematic fund at a high and exit at a low then the entire exercise
was futile. This means you cannot have a strict timeline with these funds, you
cannot pick a year when you enter and a year when you exit. You would need to
be extremely flexible and clever with your timing of entry and exit in these
funds.
Keep
in mind that the fund manager has his/her own strategy in place for entry and
exits, if your timing does not align with that of the fund manager then that is
a cause for major worry.
You
cannot predict the actions of the fund manager, that is beyond your control but
what is within your control is your actions. So the prudent thing would be to
leave timing completely up to the manager when it comes to the fund portfolio,
you would still need to take your own calls with your own portfolio.
One
of the biggest blunders that investors commit with these funds is looking at
past returns and investing blindly expecting the markets to continue with its
upward trend. When the markets slide investors exit with a heavy loss since
they entered at a market high and exit at a market low.
This
process of entering with greed and exiting with regret is very common and will
continue as long as investors look at their portfolio with goals and not
desire.
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