Tech funds emerged as sectoral outperformers in 2013 on the back of better economic outlook in developed economies and the falling rupee. Banking funds, which were the top performers in 2012, emerged the worst performers this year as interest rates remained high and the economic growth failed to get back on track.

Tech funds gave average category returns of 52.4% in CY13, outperforming defensive sectors such as FMCG (9.3%) and pharma (23.4%), data collated from Value Research show. Banking and infrastructure were the two sectors that gave negative returns in 2013 with returns of -13.4% and -7.5%, respectively. This was in a year the benchmark BSE Sensex rose by about 9%.

The surge in demand in developed markets such as the US amid a better economic outlook helped tech stocks, said Nilesh Shetty, associate fund manager, equity, Quantum AMC, adding the rupee's depreciation against the US dollar also helped their cause. The rupee depreciated 11% to 61.8/$ during the year.

ICICI Prudential Technology Reg emerged as the best performing scheme among tech funds with one-year returns of 62.5%. Birla Sun Life New Millennium, Franklin Infotech and SBI IT also gave returns in excess of 50%. The BSE IT and BSE Teck ended the year up 59.7% and 47.4%, respectively.

Pharma and FMCG sectors ended in the positive territory amid an uncertain environment. Pharma funds managed to clock decent returns as several of the export-oriented companies gained from the rupee's depreciation. The performance of FMCG funds was relatively subdued as FMCG stocks had already run up significantly in CY12. The country posted sub-5% GDP growth in the past few quarters even as the key repo rate rose by 50 bps in CY13.

Experts advise caution while investing in sector funds. Sector funds are not for passive investors; being cyclical in nature one needs to be able to time the entry and exit correctly to make money in a sector fund, said Vicky Mehta, analyst, Morningstar India.