Sectoral and Thematic Funds: Invest in Focused Themes

What is a Sectoral/Thematic Mutual Funds?

A sectoral/thematic mutual fund is an equity-oriented scheme which invests a major part of its portfolio in a particular sector or theme. Common examples include banking funds, energy funds, infrastructure funds, etc.

Advantages of Sectoral/Thematic Mutual Funds

Growth potential

Good sectors can grow considerably, offering returns higher than those offered by the market as a whole. This helps maximise your returns

Diversified portfolio

Sectoral/thematic funds invest in different companies in the same sector or theme. This gives a diversified portfolio, allowing you to invest in different companies simultaneously.

Professional fund management

Sectoral/thematic mutual funds are actively managed schemes wherein the fund managers try to mitigate risks and enhance returns.

Capitalise on Emerging Trends

These funds allow investors to specifically target and potentially benefit from emerging trends or high-growth sectors within the economy.

Sectoral/Thematic Mutual Funds Returns Calculator

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Understanding Sectoral/Thematic Mutual Funds

Table of Contents

What are sectoral/thematic funds?What are the features of sectoral/thematic funds?What are some of the popular sectors of themes?What should be the investment horizon for sectoral/thematic funds?What is the tax implication of sectoral/thematic funds?What are the payout options?

What are sectoral/thematic funds?

Sectoral or thematic mutual funds invest at least 80% of their portfolio in stocks and securities of companies belonging to a particular sector or theme. For instance, an infrastructure fund might invest in the stocks of energy, power, construction, cement, etc. companies.

What are the features of sectoral/thematic funds?

Limited diversification as the portfolio is invested in a particular kind of sector or theme
An actively-managed equity mutual funds
High risk-return trade-off
Suitable for investors with a long-term investment horizon and a high risk appetite
Invest through SIPs or lump sum
Earn tax-free returns up to ₹1 lakh if you stay invested

What are some of the popular sectors of themes?

Logistics and transportation

Banking and Finance

Manufacturing

Technology

Public Sector Undertakings (PSU)

Energy

Consumption

What should be the investment horizon for sectoral/thematic funds?

A particular sector/theme might not yield immediate or instant returns
Moreover, there’s always a risk of short-term volatility
As such, a long-term investment horizon is suitable
You can invest for 5 years or more for attractive returns
You also get a tax benefit on staying invested for a longer tenure

What is the tax implication of sectoral/thematic funds?

Returns up to ₹1 lakh are tax-free if you stay invested for 12 or more months
Returns exceeding ₹1 lakh are taxed at 10%
For redemption within 12 months, returns are taxed at 15%
Dividends earned, if any, are taxed at your income tax slab rate

What are the payout options?

Dividend option

Earn dividends on your investment at regular intervals
Growth option

Accumulate the returns over the investment tenure and get a lump sum amount on redemption

FAQs On Sectoral/Thematic Mutual Funds

Sectoral funds invest in a particular sector, while thematic funds might invest in different sectors of the same theme. However, thematic funds invest in different sectors, aligning with a common theme. For instance, sectoral funds might invest in power, technology, etc. However, if a thematic fund chooses to invest in infrastructure, it can invest in companies belonging to the cement, manufacturing, financing sectors, etc.

The biggest risk involved in sectoral funds is the risk of high concentration. Since these funds concentrate a major portion of their investments in a single sector, a downturn can bring most stocks down. Hence, proper knowledge of the sector and of investments is important before investing in sectoral funds to grab your chances at high returns.

Sectoral and thematic funds, like any other mutual fund, are highly regulated by the SEBI and managed by expert, credible fund managers. This makes them safe investments. However, as far as investment risk is concerned, they carry a significantly high amount of risk. Please ensure that you have your research in place before investing.

Thematic funds are high-risk funds. Hence, having them as 5% of your portfolio and diversifying the rest to handle risk factors is generally advised.

The minimum investment amounts vary as per the fund house you choose. SIPs could begin at as low as ₹100 and lumpsum at ₹5000.