Sector mutual funds specialize in stocks from one industry, such as transportation or leisure. You’ve seen advertisements for them on the Internet or television. Business commentators often cite these funds when discussing the performance of an industry. Now, you want to add some of these securities into your firm's portfolio.

Use the Internet to understand the basics of investing in sector funds. Many websites, such as Morningstar, offer comprehensive tutorials on what sector funds are and how they work. When learning about mutual funds sector funds, for beginners try these three methods:

1. Become familiar with basic information on mutual funds sector funds.

2. Learn about buying and selling a sector mutual fund.

3. Understand why you should invest in mutual sector funds.

Action Steps
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Learn the fundamentals of mutual funds sector funds

You can find plenty of information about sector mutual funds online. Investing in sector funds enable you to participate in certain sectors that you think will outperform the market in general. Investors are attracted to these funds because they cost less than investing in stocks. However, it's important to understand sector mutual funds can be risky and volatile.

I recommend: InvestorWords explains what mutual fund sectors are. This website gives examples of sector funds, such as gold and health care funds. My Stock Market Power also gives good sector mutual fund information. Learn how mutual funds sector funds can be risky. It also provides a list of sector funds. Exchange trade funds or ETFs are a common form of sector funds -- learn about them at iShares.

Understand how to invest in a sector mutual fund

Investing in sector funds is not hard. You can go through a financial adviser, broker, or to the mutual fund company itself to open an account. Choose the sector fund that interests you. Then do some sector mutual funds research to determine with which mutual company you want to open an account. Visit a financial research company so that you can compare sector mutual funds.

I recommend: Check out Morningstar for conducting your sector funds research. They have thousands of sector funds in their databases. You can also visit Fidelity to research funds. Access its list of the best sector mutual funds.

Learn how mutual fund sectors can benefit you

Sector mutual funds allow you to get into the market, but without risking all of your capital. You can partake in being an owner of all the securities that the sector funds' company owns. Sector funds promise high returns. In other words, when a particular sector is outperforming the market, the fund will likely do well, too.

I recommend: Fundsavvy offers good reasons as to why you should invest in sector funds. You’ll learn about the benefits of diversification. Ameriprise also provides good information on mutual funds sector funds for beginners. One of the advantages to investing in sector funds is that a professional management firm manages them.

Mutual funds sector funds were extremely popular in the mid to late 1990s. Even in today’s market, mutual fund sectors can be a great way to make money using a portion of your investable assets.

To start, you should know that mutual funds sector funds are different from ETFs (exchange traded funds). Although both can be approaches to investing in one specific industry, they trade differently. When considering an investment in mutual fund sectors, keep the following in mind:

1. If you are seeking a long-term investment in a particular industry, sector mutual funds are a great way to go. Due to the costs associated with mutual funds, if you are looking to day-trade in a particular sector, industry-specific ETFs may be more appropriate.

2. Like any other mutual fund, if you are investing in a non-retirement account, capital gains and dividend distributions are taxable.

3. All mutual fund prospectuses have some form of the following statement: “Past performance is not an indication of future performance”. With sector funds, this statement holds particularly true because the fund is legally bound to only buy within that sector, so if the sector heads south, so do the fund’s returns.

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Find a list of sector funds that meet your criteria

Some well-known money magazine websites will sort through the vast array of sector mutual funds for you and can narrow the list of sector funds based on performance and other criteria you set.

I recommend: CNN Money and Kiplinger allow you to select the specialty (sector) and other criteria to sort your results. Morningstar has a free trial with a professional grade screening tool that may help in narrowing your choices.

Research fund companies that carry the best sector mutual funds

It is important to find a fund company that not only meets your criteria for any one particular sector mutual fund, but that also has a good reputation with other sector funds as you may wish to switch your money to another sector someday. Generally it is easier and less costly to move your money between mutual funds at the same company than to move money to another company.

I recommend: Fidelity Investments, Vanguard and T. Rowe Price are well-known companies that carry a variety of sector mutual funds.

Understand the pricing, costs and fees associated with the sector mutual fund you have chosen.

There was a time when some sector funds were forward-priced hourly throughout the market day. These days, most, if not all, sector mutual funds are simply forward priced once a day. Like any other mutual fund, you never truly know what price you are going to get. With a sector mutual fund, you can have a general idea of the price based on the last price (on the business day prior) and how the stocks in that particular industry performed on the day you placed your purchase of the fund. You should also be aware that most mutual fund companies charge a fee to exchange between sector funds and many companies charge a front-end load as well as management fees.

I recommend: Read the fund's prospectus and see the fund company's website for fees associated with the individual sector mutual fund. Websites such as FinancialWeb and the Investment Company Institute offer detailed information on how mutual funds are priced daily.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  When investing in one sector, it is important to realize the risks involved and to only invest a portion of your assets in one sector. Seek professional advice if you are unsure of how much of your portfolio should be concentrated in one sector fund and which sectors may be more risky than others.

You have recently started investing in mutual fund sectors. To be a successful investor, you must stay on top of the news and trends on sector mutual funds. You need to discover the best sector mutual funds and why they're outperforming others.

Don’t just read magazines to get this information because they may not provide the in-depth information that you need, such as charts, graphs, or statistics. Make it a habit to study research reports. Research reports will supply graphs and charts to back up their analyses. Check the following resources in order to learn about mutual funds sector funds news and trends:

1. Rely on research reports for the latest in mutual fund sectors.

2. Read blogs to obtain trends on sector funds.

3. Obtain news and trends on mutual fund sectors through financial news websites.

Action Steps
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Learn about trends in sector mutual funds through research reports

Research reports provide solid information on mutual funds sector funds news and trends. Learn what sector funds investors are investing in. You'll understand why certain equity and fixed income sector funds are doing better than others. You'll learn about the funds' investment management teams. Research reports will provide not only commentaries, but will back up their facts with graphs and charts.

I recommend: Lipper provides comprehensive sector mutual fund information. You’ll get in-depth analysis on which sectors funds are receiving the largest flow of funds. View and study charts and graphs. Market Research also produces thorough research reports on information about sector mutual funds. One of the reports focuses on the largest list of sector funds, including American Funds, Vanguard, and Fidelity.

Get the latest trends on mutual funds sector funds via blogs

One of things you can learn from blogs is the latest strategies that investors are employing when investing in mutual funds sector funds. Not only will they define the strategy, but also how it works. In addition, you'll learn if these strategies yielded better returns than the S&P 500 index. Other news you can get on sector funds include reading about hedge funds.

I recommend: FundzTrader focuses on sector mutual fund rotation, in which investors trade one fund at a time. Investors are using Fidelity funds to employ this strategy. You can read how this strategy has performed. Mutual Fund Blog provides information on mutual fund sectors. You can read how hedge funds are performing or if mutual fund managers are investing their own money into mutual funds.