Which hindu sect is that?

The only one I'm in any way familiar with is Vaishnavism (Sanatana Dharma). They believe that the material world is an imperfect reality created by souls that separated themselves from god.

We're stuck here until we realise it's fake and choose to go back, god's just waiting patiently and occasionally sending us avatars to remind us what's up.

It's a belief that crops up repeatedly in European religions. Gnosticism is very similar.