The technology-focused mutual funds have come out as one of the worst-performing segments in the market across multiple time periods. This constant underperformance has raised serious concerns among the investors about whether they should increase their holdings or maintain the current exposure.
As per recent data from the ETMutualFunds, the tech funds have declined around 10.42% in one month, 13.18% in three months, and around 10.57% in six months. Further, it remained down 8.75% over the past year. So far in 2026, these tech funds have fallen 13.05%, with returns over the last three years among the lowest across equity mutual fund categories.
Various experts believe this slump is attributed towards several structural and cyclical factors. Rajesh Minocha, who is a Certified Financial Planner (CFP) and Founder of Financial Radiance, believes that this underperformance is a result of a global economic slowdown, reduced discretionary technology spending, margin pressures, and heavy reliance on the US markets.
Furthermore, he also warned against investing emotionally, mentioning that “successful sector fund investing requires precise timing. If your allocation is limited, it is advisable to stay invested, and for new investments, diversified funds such as flexicap, largecap, midcap, or multicap are better options.”
Manish Srivastava, who is an Executive Director at Anand Rathi Wealth, also added that the global tech spending has slowed down mainly because most companies are now delaying new IT projects and budgets. In fact, the rise in AI and automation is disrupting traditional IT services, which has reduced the demand for routine work and created uncertainty over future growth. He said, “Many companies are facing margin pressures due to pricing challenges and increased investment in new technology. Given this volatility, sectoral or thematic funds are not recommended for regular investors, as they require tactical entry and exit to optimise returns.”
The performance trends highlight the sector’s volatility: in 2020, tech funds returned an average of 56.71%, surging to 64.20% in 2021, before plummeting 21.18% in 2022. The funds recovered with 34.21% in 2023 and 26.76% in 2024, but fell again by 4.70% in 2025.
The broader IT sector has faced sharp stock corrections. The Nifty IT index fell nearly 17% in a month, with key stocks like TCS and Wipro down over 30% from recent highs, and companies such as Infosys, LTIMindtree, HCL Tech, and Tech Mahindra witnessing double-digit declines. Analysts note that generative AI tools capable of coding, testing, and system maintenance are driving investor anxiety, raising questions about future margins and the traditional Indian IT services model.
Should SIP Investors Worry?
The SIP investors might feel the impact of these prolonged low returns. However, experts believe that diversification can help mitigate the risks. Minocha believes that since IT constitutes over 10% of holdings in most mutual funds, concentrated exposure poses the main threat, and rupee cost averaging helps cushion the effects.
Historical performance shows volatility:
| Year | Return |
|---|---|
| 2020 | +56.71% |
| 2021 | +64.20% |
| 2022 | -21.18% |
| 2023 | +34.21% |
| 2024 | +26.76% |
| 2025 | -4.70% |
Looking ahead, experts believe there will be continued volatility. Srivastava said, “As the sector transitions from a labour-driven to an AI-led model, growth and margins may remain uneven. Companies that innovate and adapt will sustain growth, while others may struggle. Investors should avoid single-sector exposure and focus on broad-based diversified equity funds.”
Minocha added that current trends indicate a cyclical downturn rather than a structural decline, with recovery dependent on global demand. Investors are advised to remain patient and prioritise diversification over sector-specific bets.
Key takeaway: With Technology funds being sectoral, they are best for those investors who have sector expertise and a long-term horizon. Whereas for most investors, diversifying their equity funds can offer more stable returns. It can also reduce concentration risk and help navigate cyclical downturns in any single sector.
