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Mutual Funds which invest predominantly in technology companies are also popularly known as technology funds. They can invest in both debt and equities of these companies. However, technology funds usually invest in equities of technology companies. They usually try to bet on new emerging technologies which are likely to disrupt the tech world with new innovations.

ICICI Prudential Technology Fund, SBI IT Funds and Aditya Birla Sun Life New Millennium Fund are examples of some prominent Indian technology funds. Their portfolio consists of tech companies like Infosys, HCL Technologies, Tech Mahindra, Mind Tree etc. Most of the companies in these funds operate in the domain of solving complex business challenges with breakthrough technical innovations. These include IT, digital transformation, data analytics, Artificial Intelligence and Machine Learning.

Since the last few years, technology funds become quite popular in terms of investment opportunities. This is owing to a constant increase in IT sector in the GDP share and continuously increasing exports of IT products and services. As per NASSCOM report the domestic revenue of the IT was pegged at US$ 38 billion while the revenue from export was estimated at US$ 117 billion in FY17.

Suitability

Technology funds in India have consistently provided an annualized return of 14% to 19% over a five year period. With such a decent return, these can serve as a good diversification option for investors looking to cash in on the ever growing technology sector in the country. A comparative performance of prominent Indian Technology funds is shown below:

Open-ended Equity   :  Technology – Return Five Year – Top 10 
 

Fund

 

Rating

 

Category

 

Launch

 

Expense Ratio (%)

 

5-Year Return (%)

 

5-Year Rank

 

Net Assets (Cr)

ICICI Prudential Technology Fund | Invest Now  

Unrated

 

EQ-IT

 

Mar-2000

 

2.65

 

19.46

 

 

334

Aditya Birla Sun Life New Millenium Fund | Invest Online  

Unrated

 

EQ-IT

 

Jan-2000

 

2.85

 

18.75

 

2/4

 

98

 

SBI IT Fund | Invest Online

 

Unrated

 

EQ-IT

 

Jul-1999

 

2.70

 

16.58

 

4/4

 

73

Franklin India Technology Fund | Invest Online Now  

Unrated

 

EQ-IT

 

Aug-1998

 

2.90

 

15.43

 

 

190

Taxation

Just like any other fund, the taxation of technology funds also depends upon the quantum of portfolio invested in debt or equity.

If at least 65% of their portfolio is invested in equities, they are treated as equity funds for taxation. So the short term capital gains meaning the gains booked with one year of the equity-oriented hybrid funds are taxed at 15%. If these funds are held for a period more than 12 months, their long term capital gains are taxed at 10% if the gains booked exceed Rs. 1 lakh (as per the latest budget of 2018).

In case they are debt oriented, that is if their portfolio consists of at least 65% debt securities, they are treated as debt funds. This means the long-term capital gains tax is applicable if the fund is held for 36 months or more. However, most technology funds are equity-oriented.

Technology funds being equity oriented mostly – Capital Gains Tax Rates explained

 

Type of Security

Cut-off Date Short Term Capital Gains (STCG Tax Rate) Long Term Capital Gains (LTCG Tax Rate)

Technology Equity Funds                   (STCG – units held for less than 1 year         LTCG – units held for more than 1 year)

Gains made till 31 – 1 – 2018

 

   15%

 

Nil

Technology Equity Funds                  (STCG – units held for less than 1 year         LTCG – units held for more than 1 year) Gains made after 31 – 1 – 2018  

   15%

10%                      (If such gains are greater than 1 lakh)

 

As an investor it helps if one has a basic understanding of the technological space in which the tech companies operate. If one has the ability to foresee how these new technologies can disrupt existing businesses, then one can make enviable capital gains by selecting the right technology funds.

 

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