Fund category guide
Best technology funds in India: what they own, and what to expect from them
Technology funds are mostly a bet on Indian IT services selling to American and European clients. That makes them a play on two things at once: global corporate spending and the rupee. Add the question of what AI does to the billing model, and this is the most opinionated sector fund you can buy.
Key takeaways
- Technology funds are SEBI sectoral or thematic schemes: at least 80% of assets must stay in the technology theme.
- The Indian listed universe is top-heavy — a handful of IT services exporters dominate most portfolios and the benchmark.
- Revenue is mostly in dollars, so the rupee is part of your return, for better and for worse.
- The cycle is global. A slowdown in US and European enterprise spending hits this fund while India grows fine.
- AI is a genuine two-sided question: it can compress the billing model or expand the addressable work.
- Taxed like any equity fund at 12.5% long-term above ₹1.25 lakh — but overseas feeder funds follow different rules.
What is a technology mutual fund?
A technology fund is an open-ended equity scheme in SEBI’s sectoral and thematic category. At least 80% of assets must sit in the sector named in the mandate. For technology that means IT services exporters, product and platform companies, internet businesses, and the fintech and digital names that fund houses read into a broader digital theme.
The composition matters more here than in most sectors, because the Indian listed universe is lopsided. Four or five large IT services exporters make up the bulk of the index, and they earn most of their revenue abroad in dollars. Funds differentiate themselves in the remaining space: some hold mid-cap IT and engineering R&D names, some hold new-age internet listings, and several keep a global sleeve in US technology stocks through a feeder or direct allocation.
Two consequences follow. Currency is part of the return: a weaker rupee lifts reported earnings even when the underlying business is flat. And the sector’s cycle is not India’s cycle — an American recession or a pause in enterprise software budgets hits this portfolio while the domestic economy is fine.
Ways to own the technology theme
“Technology fund” covers four fairly different mandates. Pick the one whose driver you actually want exposure to.
The core of every Indian technology fund: companies selling software development, maintenance and consulting to overseas clients on a time-and-materials or fixed-price basis.
Large cap exporters
The four or five biggest names, with deep client relationships and steady margins. They set the sector’s direction.
Index heavyweightMid cap IT
Faster growing, more specialised firms. Higher growth and higher client concentration, so the swings are larger.
Higher betaEngineering R&D
Outsourced product engineering for auto, aerospace and semiconductor clients. A different, longer-cycle demand pool.
Long cycleDeal wins & TCV
Total contract value announcements are the leading indicator of revenue two to four quarters out.
Leading indicatorWhich are the best technology funds in India?
Start with what the fund actually holds. A large cap IT services portfolio, a mid-cap-heavy digital fund and a Nasdaq feeder are all sold as technology and produce very different outcomes in the same year. After that the screen is the usual one: a record through the 2022 de-rating, rolling returns against the Nifty IT index, a reasonable expense ratio, and a manager who was there for the record you are buying.
The table below is ranked on three-year returns and refreshed from live scheme data. Judge any fund against the Nifty IT TRI rather than against the Nifty 50.
| Fund | AUM | 1Y | 3Y | 3Y volatility | Expense |
|---|---|---|---|---|---|
| Tata Nifty India Dgtl ETF FoF Reg Gr | ₹117 Cr | -6.97% | 8.44% | 19.43% | 0.48% |
| Franklin India Technology Gr | ₹1,754 Cr | -10.51% | 7.22% | 18.62% | 2.11% |
| SBI Technology Opportunities Reg Gr | ₹4,488 Cr | -9.58% | 6.76% | 19.33% | 2.00% |
| ICICI Pru Technology Gr | ₹13,661 Cr | -11.32% | 4.51% | 20.24% | 1.88% |
| HDFC Technology Reg Gr | ₹1,484 Cr | -15.65% | 4.24% | — | 2.16% |
| Tata Digital India Reg Gr | ₹10,322 Cr | -13.85% | 3.06% | 20.92% | 1.76% |
| ABSL Digital India Gr | ₹4,022 Cr | -9.15% | 2.73% | 20.84% | 1.62% |
| LIC MF Technology Reg Gr | ₹95 Cr | — | — | — | 2.83% |
| Category average | — | -11.51% | 0.81% | 22.52% | — |
Returns annualised (CAGR) for periods over one year, as reported for the plan listed. Expense ratios shown are for that plan; the direct plan of the same scheme carries a lower one. Past performance does not indicate future returns.
How do you choose a technology fund?
Five checks, in the order they matter. The first one decides how much of your return comes from the dollar.
Check the India-versus-global split
Some funds are almost entirely Indian IT services; others keep a fifth of the portfolio in US technology. That single choice explains most of the return difference between two technology funds in any given year, and it changes the tax treatment if the overseas share is large.
Screen: know the overseas allocation before you invest
A record through the 2022-2023 de-rating
Technology looked infallible in 2020 and 2021, then fell hard as budgets tightened. A fund without that period in its record has never been tested. Older funds also carry the 2000 and 2008 experience, which is worth reading.
Screen: 7+ years, or accept an untested fund knowingly
Concentration in the top five
The benchmark itself is extremely concentrated. Check whether the fund is meaningfully different from it — if the top five holdings mirror the index at similar weights, you are paying active fees for passive exposure.
Screen: active share against the Nifty IT index
Expense ratio against the index option
A Nifty IT index fund costs about 0.3% and a Nasdaq feeder about 0.25%. An active technology fund at 1.0% must justify the gap in a sector where the largest holdings are the most heavily researched stocks in India.
Screen: direct plan under 1.0%, compared to an index option
Overlap with what you already own
IT is around a tenth of the Nifty 50. Your index and flexi cap funds already hold the same three or four companies at meaningful weight, so a technology fund concentrates existing exposure rather than diversifying it.
Screen: overlap with core funds under 25%
Technology vs global tech vs diversified equity
These three overlap less than they look. Indian IT services and US technology are different businesses — one sells labour-based services, the other sells software with far higher margins.
| Attribute | India tech fund | Global tech fund | Diversified equity |
|---|---|---|---|
| What it holds | Indian IT services and digital, min 80% | US software, semiconductors, platforms | All sectors, IT at index weight |
| Main driver | Global IT budgets and the rupee | US earnings growth and rate expectations | Broad corporate earnings |
| Typical volatility | High | Very high | Moderate |
| Worst-case drawdown | 35-45% | 40-55% | 25-35% |
| Taxation | Equity: 12.5% LTCG after 12 months | Often non-equity treatment; check the SID | Equity: 12.5% LTCG after 12 months |
| Role in a portfolio | Satellite, 5-10% of equity | Satellite, 5-10% of equity | Core holding |
What would an SIP in a technology fund grow to?
Set a monthly amount, a horizon and a return assumption. Treat the third slider carefully: this sector’s five-year numbers include a pandemic-era re-rating that has already partly unwound, so extrapolating them forward overstates the likely outcome.
Worked example: a ₹10,000 monthly SIP held for 15 years at 13% a year is ₹18,00,000 invested across 180 instalments. That projects to ₹55,56,813, of which ₹37,56,813 is estimated gains. The figure assumes a constant return; real technology returns vary year to year and can be negative, so treat it as arithmetic, not a forecast.
- Total invested
- ₹18,00,000
- Estimated gains
- ₹37,56,813
- After 12.5% LTCG tax
- ₹50,87,211
A projection, not a promise. Technology fund returns arrive in bursts and can be negative for two or three years at a time.
Who should invest in technology funds?
- You already hold a diversified equity core and want a deliberate overweight to technology and digital earnings.
- You want some dollar-linked earnings in a rupee-denominated portfolio, and understand currency works both ways.
- You can hold through a two-year period of flat or negative returns while global budgets reset.
- You have a view on AI — either that it expands the work or that the leaders adapt — and want to express it.
And who should skip it
- This would be your first equity fund. Start with a diversified or index fund and build the core.
- You are buying because the 2020-2021 returns looked spectacular. That period included a re-rating that has partly reversed.
- You need the money inside five years, or you would sell after a 40% fall.
What are the risks?
The AI question is unresolved
Automation could compress the hours billed on maintenance and testing work, which is a meaningful share of Indian IT revenue. It could equally create a decade of modernisation projects. Nobody can currently prove which dominates.
Global demand, not Indian demand
Revenue comes from American and European clients. A recession there, or simply a pause in discretionary project spending, cuts growth regardless of how well the Indian economy is doing.
Currency cuts both ways
A weaker rupee flatters reported earnings and a stronger one hurts them. Part of the sector’s past return is currency, which is not a durable source of growth.
Extreme benchmark concentration
The Nifty IT index is dominated by a few names. A single company’s guidance cut can move the whole sector, and most funds hold it heavily.
Client and pricing pressure
Large clients consolidate vendors and negotiate rates hard in slow years. Margins are defended through utilisation and offshore mix, both of which have limits.
How are technology funds taxed?
Domestic technology funds are equity-oriented schemes, so equity capital gains rules apply. Funds that invest predominantly overseas, including Nasdaq feeder funds, are taxed differently — check the scheme document before you assume equity treatment.
Held 12 months or less
20%
Short-term capital gains, taxed at a flat 20% regardless of your income slab.
Held over 12 months
12.5%
Long-term capital gains, taxed at 12.5% without indexation on gains above the annual exemption.
Annual LTCG exemption
₹1.25 L
The first ₹1.25 lakh of long-term equity gains in a financial year is tax-free, across all equity funds and shares combined.
Rates as applicable to resident individuals for FY 2026-27 under the current capital gains regime. Surcharge and cess apply on top. The exception worth knowing: a fund holding mostly foreign equity is not an equity-oriented scheme for tax purposes, and international fund-of-funds follow their own holding period and rate rules. Tax rules change; confirm your position with a tax adviser.
Terms you will meet on a technology fund factsheet
- Constant currency growth
- Revenue growth with exchange rates held fixed. The honest measure of whether the underlying business grew.
- TCV / deal wins
- Total contract value of new orders. A leading indicator of revenue two to four quarters ahead.
- Utilisation rate
- The share of employees billed to clients. Rising utilisation supports margins without hiring.
- Onsite-offshore mix
- How much work is done at the client’s location versus in India. More offshore means lower cost and higher margin.
- Attrition
- Employee turnover. High attrition raises wage costs and delivery risk, and is watched closely in results.
- ER&D
- Engineering research and development services — outsourced product engineering, a longer-cycle and less commoditised revenue pool.
- Feeder fund
- A domestic scheme that invests into an overseas fund. Convenient, but usually taxed as a non-equity scheme.
- Active share
- How much a portfolio differs from its benchmark. Low active share in a concentrated sector means you are paying for the index.
Frequently asked questions
What is a technology mutual fund?
A sectoral or thematic equity scheme that must keep at least 80% of its assets in technology companies — IT services exporters, software products, internet platforms and digital businesses. Several Indian technology funds also keep a sleeve in US technology stocks, within the limits their scheme document allows.
Which are the best technology funds in India?
They differ mainly in how much sits outside India. ICICI Prudential Technology and Tata Digital India are largely Indian IT portfolios. SBI Technology Opportunities and Franklin India Technology hold a meaningful global sleeve, which changed their returns materially in recent years. A Nifty IT index fund gives you the sector at a fraction of the cost, and a Nasdaq feeder is a different asset altogether. Pick the exposure first, then compare rolling returns, expense ratio and manager tenure.
Are technology funds a good investment in 2026?
The sector has spent three years digesting the pandemic-era boom, and valuations are more reasonable than they were. Growth depends on global client budgets recovering and on AI turning out to be an expansion of demand rather than a compression of billing. That is a real uncertainty, not a formality, so size the position accordingly — 5-10% of equity, not more.
How much of my portfolio should be in technology funds?
Cap any single sector fund at 5 to 10% of your equity allocation. Remember that IT is already about a tenth of the Nifty 50, so your core funds hold it too. A sector fund is added exposure on top of that, not new exposure.
How are technology funds taxed in India?
A domestic technology fund is an equity-oriented scheme: 20% short-term capital gains up to 12 months, 12.5% long-term after that, with the first ₹1.25 lakh of long-term equity gains each year exempt. A fund that invests predominantly overseas, such as a Nasdaq feeder, is not equity-oriented for tax purposes and follows different holding period and rate rules — check the scheme document.
What returns do technology funds give?
Streaky ones. The category delivered exceptional numbers in 2020 and 2021, then two poor years, then a partial recovery. Over a full cycle the return depends on dollar revenue growth, margins and the currency — not on a straight-line extrapolation of any single three-year window.
India tech fund or a global tech fund?
They are not substitutes. Indian IT services sells labour-based services with mid-twenties margins; US technology sells software and semiconductors with much higher margins and much higher valuations. If you want the software business model, a global fund is closer to it — accepting the different tax treatment and currency exposure.
Wondering how much technology exposure you already have?
IT is roughly a tenth of the Nifty, so your index and flexi cap funds already own it. Talk to a Dhan Saarthi advisor — twenty minutes on your existing portfolio, horizon and tax position, and you will know whether a tech fund adds anything or just doubles up.
Disclaimer
Mutual fund investments are subject to market risk. Read all scheme related documents carefully before investing. Past performance is not indicative of future results, and the value of your investment can go down as well as up.
Sectoral and thematic funds carry concentration risk and are meant for investors who understand that a single sector can underperform the broader market for extended periods. This page is educational content on a fund category, not investment advice or a recommendation to buy or sell any specific scheme.
Dhan Saarthi is a mutual fund distribution platform. Fund selection should reflect your own goals, horizon, tax position and risk tolerance. Consider consulting a SEBI-registered investment adviser before acting on anything here. Scheme names are mentioned for illustration and are not endorsements.
Tax rates referenced apply to resident individual investors under the capital gains regime in force at the date of publication and may change. Returns shown are illustrative placeholders, not live NAV-based figures. Calculator outputs are arithmetic projections based on the assumptions you enter, not guarantees.