A Quick Guide to Thematic Mutual Funds

With one single purchase, you can invest in hundreds of diverse securities, hire a professional administrator and keep your investment costs flat. That represents the power and significance of mutual funds. Mutual funds pool capital from individuals and companies to invest in stocks, securities and other assets in different industry sectors and areas of the world.

Many mutual funds have sect-oral funds which invest in a particular sector. For example, a pharmacy fund will invest in pharmaceutical companies. A banking sector fund will invest in banks, etc. In addition to this, many mutual funds have also launched Thematic Funds. Now, what are these Thematic Funds?

Thematic Funds are growth-oriented equity schemes which aim to achieve capital appreciation by investing in a set of stocks that are strictly related to a particular theme. For example, an automobile thematic fund will invest in companies which may work in different industries. But are part of the common theme like automobiles companies, auto ancillaries and petrochemicals, all related to the automobile sector. If you are hunting for more information on thematic funds, take a look at previously mentioned site.

Thematic Mutual Funds are property mutual funds that invest in stocks based on an appropriate and specific theme. Unlike sect-oral funds, the thematic fund does not fund in just one sector. It invests across areas that are formed around a general idea. In terms of the abundance of stocks and portfolio structure, thematic funds look as different as different equity schemes, but they have several sectors. Thematic funds are based on a specific theme which varies from being multi-sector, international exposure, export-oriented and rural India, etc.

Thematic Funds are more precarious than diversified equity funds or large-cap equity funds. Many financial advisers recommend that the acquisition tenure for such funds should be a minimum of five years or more as a particular theme may not play well for an extended period. Therefore, they advise that some amount of timing is required to enter and exit thematic funds. They also indicate that it should not be part of your core mutual fund portfolio, and the total exposure to thematic funds should not be more than 10 – 15% of your entire case.

Themes like Digital India, Make in India, Rural India has been used by mutual funds to launch thematic funds. The production of these funds is closely linked to the overall industry (theme), trend or implementation of management policies. In general, these funds follow a top-down investment approach with a focus on broader, macroeconomic issues that a fund administrator can use to identify reputable companies.

One of the critical principles of thematic investing is ensuring that the secret embedded within any theme’s underlying story isn’t already out in the market and factored into the price.

Advantages of Thematic Funds:

Thematic Investing is a platform which you can use to invest in the most effective way possible and in the least amount of time. It has compact themes which give you a concentrated exposure to events, government policies, ideas, current trend etc. which can earn much higher returns than other mutual funds.

Risks associated with Thematic Funds: Unlike diversified funds, thematic funds concentrate on only one theme. Thus, portfolio concentration makes them risky in comparison with diversified equity funds which invest across sectors.

Thematic Mutual Funds are generally for seasoned investors who have the domain knowledge regarding capital markets.

For example, if you believe education is a great business. Then you can invest in shares of excellent knowledge or education-related companies who are benefiting from the rise in education-related spends by Indians.

Continue Reading →