Technology-based mutual funds lost up to 18% in 2025. Time favourable to allocate more?

With the technology based mutual funds down by up to 18% in the current calendar year so far, amid all the challenges, a market expert recommends it to be a reasonable entry point for long-term investors and it’s prudent to adopt a staggered approach via SIPs or STPs rather than lump sum investments.

“Despite near-term challenges, the current correction offers a reasonable entry point for long-term investors. The technology sector continues to benefit from structural trends like digital transformation and AI adoption. However, given ongoing global uncertainties, it’s prudent to adopt a staggered approach via SIPs or STPs rather than lump sum investments,” Sagar Shinde, VP of Research at Fisdom recommends.

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While recommending to make investment in these funds, the expert asks investors to moderate the return expectations and cap exposure in these funds around 10-15% of the portfolio.

“Also, investors should moderate their return expectations and cap tech fund exposure to a satellite portion (around 10–15% of the portfolio). Importantly, most diversified equity funds already have meaningful exposure to technology stocks—especially large-cap IT—so if you’re already invested heavily in diversified funds, a separate allocation to tech-focused funds may not be necessary,” Shinde further recommended.

In the current calendar year so far, technology based funds have lost upto 18.45%. On an average, these funds have offered a negative return of around 14.99% with Motilal Oswal Digital India Fund being the biggest loser. The scheme has delivered a negative return of around 18.45% in the current calendar year so far.

SBI Technology Opp Fund offered a negative return of around 12.41% in the mentioned period. Aditya Birla SL Digital India Fund gave a negative return of around 15.15% in the said period. ICICI Pru Technology Fund lost the lowest of around 12.29% in the current calendar year so far.

The expert attributes this underperformance to weak earnings and cautious client spending amid global macro uncertainty and the overall environment has turned cautious, with smaller discretionary deals being pulled back and margin visibility coming under pressure, triggering a correction across tech-focused funds.

“Technology funds have declined in 2025 due to weak earnings and cautious client spending amid global macro uncertainty. A potential U.S. slowdown has delayed IT deal closures, especially in BFSI, retail, and manufacturing. Adding to this, rising trade tensions and inflationary tariff policies in the U.S. have impacted sectors like logistics, Retail, and manufacturing—leading to deal deferrals and reprioritization of IT budgets. The overall environment has turned cautious, with smaller discretionary deals being pulled back and margin visibility coming under pressure, triggering a correction across tech-focused funds,” Shinde mentioned.

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In the last six months, technology based funds have lost 13.21% on an average with Quant Teck Fund being the biggest loser among 10 funds in the category in the mentioned period. The scheme went down by 17.50% in the last six months. SBI Technology Opp Fund lost the lowest of around 8.89% in the last six months period.

In the last one year, only one fund gave a negative return. Quant Teck Fund gave a negative return of around 3.34% in the last one year whereas HDFC Technology Fund gave the highest return of around 14.11%.

The medium to long term outlook for tech based funds remains positive and overall, after the recent correction, valuations have become more reasonable, making the sector attractive for patient investors looking beyond short-term noise.

“Digital transformation, cloud adoption, AI, data analytics, and automation continue to be key drivers of enterprise spending globally. Indian IT firms, with their scale and capabilities, are well-positioned to benefit from these long-term trends. However, in the short term, growth is expected to be muted as clients remain cautious and cost-conscious. Margins could remain under pressure due to high attrition and wage inflation,” according to Shinde.

After strong earnings by IT companies in the last quarter, the brokerage firm Kotak Institutional Equities expects a sequential revenue decline for all large IT companies for the March 2025 quarter due to seasonal weakness, lower billing days and marginal deterioration in demand.

The brokerage firm Motilal Oswal stated that IT companies are expected to post growth within its coverage universe, however, the margins are expected to be range-bound. Motilal Oswal believes that the growth deceleration is largely priced in, but NSE IT Index currently trades at a 28% premium to the Nifty (5/10-year avg of 29%/14%). It also adds that most large-caps are trading at 5-year average PE multiples, and further de-rating is unlikely.

Technology funds are sectoral funds which invest most of their corpus in a particular sector, and the performance of schemes is based on performance of the sector. That is why thematic or sector funds are recommended only to investors with thorough knowledge about the sector. You should invest in these schemes only if you have a long investment horizon or have intimate knowledge about the sector to time the entry and exit in these schemes.

One should always consider risk appetite, investment horizon, and goals before making any investment decisions.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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