The tech & IT revolution has positively influenced most of us, whether it is receiving direct benefit transfers, making UPI transfers, banking and investing, booking tickets for daily commutes or movie tickets, hotel bookings and much more. In other words, IT and tech have become the digital backbone of our economy.
A unique combination of high-growth digital infrastructure, a massive talent pool, and a pivot toward high-value frontier technologies, such as Artificial Intelligence (AI) and robotics, has also attracted investors.
Domestic mutual funds are increasing exposure to the tech sector, with several Indian companies, such as TCS, Infosys, Mphasis, Coforge, HCL Tech, Tech Mahindra, Wipro, etc., alongside several other smaller companies, driving the IT and tech boom.
The US tech boom (as companies have reported encouraging earnings), stable interest rates, and the remarkable gains in semiconductors in Taiwan and South Korea are also behind the increased participation.
The total exposure of all domestic mutual funds (including diversified equity funds) to IT and tech stocks is roughly around Rs 4 trillion. In comparison, the combined AUM of the IT and tech funds is approximately Rs 40,000 crore (as per the March 2026 portfolio).
According to a BCG report, India's technology sector makes up about 7% of the country's GDP and represents 17% of global IT services. However, it only accounts for 1% in fast-growing fields such as semiconductors and artificial intelligence, highlighting significant untapped potential in these areas.
By 2030, India's IT and tech sector is estimated to account for 10% of India's GDP. The increase is expected to come from IT services exports, the AI boom, Global Capability Centres (GCCs), and semiconductors.
So, the potential is huge. And this is why many retail investors, too, have exposure to India's IT and tech sector – through direct equity holdings and mutual funds – and have been well rewarded over the long term.
The Nifty IT index has rallied, particularly after the pandemic. While after the peak of December 2024, this index has corrected over 35% (due to factors like Trump's tariffs, geopolitical uncertainty, slowdown in global demand (particularly from the US and Europe, which accounts for 75% of the revenue of Indian IT companies), AI disruption, where India currently lags, etc.), the outlook for India's IT and tech sector seems promising.
How Have The IT And Tech Funds Performed?
Over the short term – the last 3 and 6 months – IT and Tech Funds have posted negative double-digit returns, averaging approximately -13% to -14%.
Although this is lower than the returns of the BSE IT – Total Return Index (TRI), certain IT and tech funds, such as Axis Nifty Index Fund, Bandhan Nifty IT Index Fund, DSP Nifty IT Index Fund, ICICI Prudential Nifty IT Index Fund, Nippon India Nifty IT Index Fund, and SBI Nifty IT Index Fund -- among the passively managed – have fallen even more than the category median.
Similarly, among the actively managed funds, the HDFC Technology Fund and Tata Digital India Fund have taken an even deeper hit, posting returns of -14% to -16% over the past 3 and 6 months. This underperformance extends to the 1-year returns as well.
However, over the medium- to long-term, IT and tech funds have generated wealth. Over the past 3 and 5 years, they have clocked compounded average growth rates (CAGRs) of 10.3% and 9.7%, respectively, outperforming the BSE IT - TRI.
Some funds, such as the Franklin India Technology Fund and SBI Technology Opportunities Fund, have comfortably outperformed the category average and the BSE IT - TRI over the past 3 and 5 years, while others haven't disappointed investors with returns lower than the Nifty 50 Index Fund.
Over the long term, i.e., 10 years, a fund with an established track record, such as SBI Technology Opportunities Fund, has comfortably outperformed the category average, the BSE – TRI, and the Nifty 50 Index Fund, posting a 16.6% CAGR. Not only that, but it has also exposed its investors to lower risk (standard deviation of 17.7%) and justified the risk taken by registering a higher risk-adjusted return (Sharpe ratio of 0.40)
This indicates that fund selection matters. You cannot invest in any IT or tech fund. If you aim to outperform the BSE IT (or Nifty IT) index, consider actively managed IT and tech funds with a strong track record. If you want to clock returns in line with the IT index, consider Nifty IT Index funds.
Would It Be Worthwhile Investing In IT And Tech Funds Now?
Given the bright outlook for India's IT sector, where it's playing a pivotal role in the economy, and the valuations, it seems an opportune time to invest in IT and tech funds. The noticeable correction in the IT index needs to be approached tactically.
The price-to-equity (PE) ratio of the BSE IT Index is currently around 20.6, below the 5-year median of 28.2, offering a decent margin of safety.
That said, consider IT and tech funds only as part of your satellite holdings, not exceeding 5-10% of your overall investment portfolio, and only if you have a very high-risk appetite. Remember, the fortune of the IT and tech funds will be closely linked to how the IT index ultimately fares.
Moreover, the decision to invest in IT and tech funds should not be based on short-term historical returns, but rather on the scheme's long-term performance track record, including risk ratios and portfolio characteristics.
Make sure you choose your mutual fund schemes carefully after thorough evaluation. If you aren't sure how to go about it, don't hesitate to reach out to a SEBI-registered investment adviser.
Happy investing!
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