Thematic Funds: Meaning, Benefits & Investment Opportunity

A mutual fund is an investment vehicle that pools money from investors and invests the accumulated corpus in a wide range of capital market securities. Mutual fund schemes may be categorised based on the nature of their investment portfolio. Thematic funds are one such category of mutual fund schemes. Let us understand the concept of thematic funds in India.

Thematic funds are mutual funds that invest in securities of companies that are bound by a common theme. Fund managers of thematic funds aim to concentrate their portfolio on one core element of the economy. The theme may be anything from stocks of international companies to commodity stocks and may range across various sectors.E.g.: An infrastructure theme fund invests in multiple sectors like cement, power, steel, real estate, etc. A manufacturing theme fund invests in securities of companies engaged in manufacturing that belong to various industries like chemicals, pharmaceuticals, automotive, etc.

• Exposure in different sectors enables partial diversification of risk. If one sector’s growth is on the decline, the securities issued by companies in other sectors compensate for the scheme’s performance.
• Thematic funds help investors peg their returns to the development of a stratum of the economy.
• Less risky than sector-focussed funds.

• Riskier than most mutual fund schemes, especially diversified funds.
• Returns may be unpredictable, and ergo, losses may also be unforeseeable.
• Risks associated cannot be accurately calculated or compared as there is no counter benchmark.
• The expense ratio of thematic funds is slightly higher as they are dynamically and actively managed.

• Aggressive investors seeking high risk-high return investment opportunities
• Investors with higher risk appetite
• Mature investors who actively follow market trends and undertake calculated risks

Although thematic schemes pose as a favourable investment opportunity, one must examine crucial details like the scheme’s fund manager, investment objectives, risk profile, portfolio, etc. so as to make an informed decision.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.