NFO Review: Should you invest in DSP Nifty IT ETF? Here’s what experts say

Technology funds have earned more than 19 per cent in 10 years. This is despite the effect of the recession that caused many technology stocks to lose their value in 2022. Tech companies cut back on their spending too, thus, highlighting the chaos in this sector, albeit for a temporary period. 

A look at how absolute returns of around 106.88 per cent over the past five years have helped many people to earn decent returns over the period. Despite the high volatility that gripped the market due to continued rate hikes, many personal finance analysts termed as the “Buy on Dips” market when it came to investing in tech stocks.

Also, the recent rise of artificial intelligence is redefining technology in a new way, thus, underlining the rising importance of technology in today’s times. A look at the stock investments by both foreign institutional investors (FIIs) and domestic institutional investors (DIIs) reveals how major fund houses and big investors are piling up on tech stocks, thus, also raising the possibility of a technology stock boom in the coming years.

Given that the overvalued tech stocks are now fairly valued, does it make sense to invest more in tech stocks or increase allocation toward tech investments?

Viral Bhatt, Founder, Money Mantra said, “Whether or not it makes sense to invest more in tech stocks or increase allocation toward tech investments depends on your individual investment goals and risk tolerance. If you are a long-term investor who is looking for growth, then investing in tech stocks could be a good option. Tech stocks have historically outperformed other sectors in the long run, and they are likely to continue to grow as technology continues to evolve. However, tech stocks are also more volatile than other sectors, so they are not suitable for all investors. If you are a short-term investor or have a low risk tolerance, you may want to avoid investing in tech stocks. Tech stocks are more likely to experience sharp declines in price than other sectors, so they are not suitable for investors who are looking to protect their capital.”

Dev Ashish, a SEBI-registered investment advisor and Founder - Stable Investor added, “Most investors are better off not investing in sectoral/thematic funds or consciously trying to increase allocation to one particular sector at all. Their investment needs are sufficiently served via diversified equity fund categories like large-cap index funds, flexi-cap funds, large & midcap funds, etc. But every now and then, people do get tempted to take sector bets as they want to generate returns higher than market returns. It is not wrong but the approach comes with additional risks which is not suited for most. So, while increasing allocation to IT worked well in 2020-21, it didn’t in 2022-23. Increasing sectoral allocation is best left for investors with high-risk appetite, who have lots of patience and the knowledge as to why they want to take a concentrated bet in a given sector.”

To avail of the rising affinity towards tech investments, DSP Mutual Fund recently launched the DSP Nifty IT ETF on June 21, 2023. The objective of the scheme is to help investors avail of returns that, before expenses, correspond to the total return of the underlying index (Nifty IT TRI), subject to tracking errors. There is no assurance or guarantee that the investment objective of the scheme would be achieved.

Given the proposed asset allocation in the Scheme Information Document, the risk factor involved would be too high.

Considering how the DSP Nifty IT ETF is a new fund offer (NFO) with no details of past performance, does it make sense to invest in it?

Rishabh Parakh, Chief Play Officer, NRP Capitals, suggested, “My suggestion is never to invest in a sectoral fund unless you are doing it based on your risk profile and given the IT sector current slowdown - it went up crazily during covid times and surely has a good future but that is the whole point with the sector-specific fund- it remains lull for a long time and then spikes suddenly. Remember this - sectoral funds come with a high-risk-reward proposition and timing the exit. If you make a good profit when the sector outperforms is extremely important apart from having the patience to stay silent when the sector remains stagnant for years together.”

Most experts advise against putting money in NFOs, citing that they are too new to be assessed and then decided in favour of. Pankaj Mathpal, Founder & CEO, Optima Money Managers shared, “Exchange Traded Fund or ETF is a passive fund that replicates and tracks the performance of an Index. DSP Nifty IT ETF will track the Nifty IT index. Though ETFs try to replicate the returns of benchmark indexes yet there may be some tracking errors. Tracking errors may be a little higher if the fund is not managed efficiently. And liquidity may be poor if the size is small. Investors may prefer buying existing Nifty IT ETFs.”

The mutual fund industry is on a spree of launching new funds hoping to avail of the existing optimism among investors in the market. The euphoria surrounding stagnant repo rates and lower chances of repo rate hikes in the future have filled investors with hope as they look forward to invest not only more money but also in varied investment options.