Thematic funds

Thematic funds

Thematic funds choose industries and sectors related to a certain idea or topic, as the word “thematic” implies. Investing in businesses that revolve around a certain theme that is developing due to economic trends could be profitable.  

Managers of thematic funds aim to maximise these windows of opportunity. And as it is an equity fund, it is best suited for risk-taking investors. 

What is a thematic fund? 

Thematic mutual funds are a type of investment fund that invests in a specific theme or sector. For example, a fund may focus on technology, healthcare, or environmentally friendly companies. 

Thematic funds feature a top-down investing philosophy, in contrast to the bottom-up stock-choosing method used by many diversified equities funds. 

Types of thematic funds 

Prominent categories of thematic mutual funds include a few subjects that have acquired increasing popularity. These are some of these themes: 

• PSU funds 

A fund manager that invests in government-run company stock. 

• Manufacturing theme funds 

Stocks of businesses involved in the creation or manufacture of items are included in the portfolio of the manufacturing theme fund. 

• Energy funds 

Fund managers purchase stocks of businesses involved in the renewable resource industries as part of their energy portfolios. 

• ESG theme funds 

Shares of businesses assessed based on their environmental, social, and corporate governance performance are included in the portfolio of ESG theme funds. 

• MNC funds 

These are funds which invest in securities of publicly traded multinational firms. 

• Consumption funds 

These funds invest in industries focused on industries related to consumer spending, such as automotive, durables, telecommunications, and consumer goods industries. 

How to invest in thematic funds? 

Investment specialists that specialise in a certain subject or trend handle thematic funds. These managers research businesses before choosing those they think would profit from the theme and offer room for expansion. 

Thematic funds are available through several channels, including mutual funds, exchange-traded funds (ETFs), and individual equities. The fund manager chooses which businesses to invest in and when to acquire or trade those investments, as well as manages the assets within the theme fund. 

Understanding the investment strategy of thematic funds 

Thematic funds can be a good way to invest in a sector that is growing rapidly or that you believe will have long-term potential. However, it is important to remember that these funds can be more volatile and riskier than traditional mutual funds. 

Fund providers frequently introduce thematic fund schemes when they recognise a chance to invest and expand around a clearly defined subject. 

Thematic funds may be successful if investors choose an appropriate theme. So, to invest wisely, one needs to be well-versed in market and macroeconomic situations. Due to their inability to keep up with industry swings and economic cycles, these funds aren’t recommended for novice investors. 

The extended period it takes for theme funds to produce returns also meets the demands of investors looking for long-term gains. Lastly, theme investing is appropriate for people with a strong appetite for risk because it is a component of equities mutual funds. 

Risk of thematic funds 

Equity funds, by nature, have a higher risk than other categories of mutual funds. However, there are additional risks associated with investing in themed funds. Thematic investment might carry greater risks than other mid-cap and large-cap funds. This is because the target industry might do incredibly well one year and poorly the next. 

As a result, investing in a theme fund based on how it did the previous year might result in losses. You will also need to keep your investment for a longer period to offset the losses it experiences during economic downturns. 

Frequently Asked Questions