Everything You Need To Know About Thematic Mutual Funds - Part 1


Each mutual fund is based on an asset that brings in money. Large-cap funds' underlying assets are the stocks of some of India's biggest companies based on market capitalization. In a similar way, thematic funds are made up of stocks of companies that all have something in common with a certain theme. For example, a fund with an ESG theme will invest in companies from different industries that have done well in terms of the environment, society, and the way the company is run (from technology to financial services to FMCG to Consumer Durables). Because of this, thematic funds are different from traditional investment strategies like market capitalization (large-cap, mid-cap, small-cap), style (value & growth), and sectoral investing (pharma, technology, infrastructure). As long as it has something to do with the topic, it invests in many different industries and market values. SEBI also says that 80% of a company's total assets must be invested in stocks and securities related to stocks of a certain theme. 1. What are the pros of investing in thematic funds? More options for diversification than sectoral funds. When you invest in a sector fund, your portfolio is limited to that sector, so you don't have any other options for diversification. Your portfolio will suffer if the sector is doing badly for any reason. Thematic funds, on the other hand, invest based on a theme and may include stocks from companies in different industries. This gives you a bit of diversity. For example, think about a fund whose main focus is on manufacturing. This fund puts its money into a wide range of engineering, chemical, and construction businesses. So, even if businesses in one area aren't doing well at a certain time, businesses in other areas will keep your portfolio from falling apart in a big way. 2.Returns that beat the market If the investor chooses the right theme to invest in, thematic funds may produce amazing returns. Still, we need to realise that getting the theme right is harder than it seems. It requires that you keep an eye on the things you're interested in and pay attention to the news and headlines all the time. If, after all your hard work, you really nail the topic, thematic funds could pay off in a big way for you. 3. Who is a good fit for thematic funds? Investors with a high risk tolerance: Thematic funds are one of the high-riskmutual funds. When a portfolio is put together with a theme in mind, it limits the kinds of investments that can be made. It would only be able to put money into companies with shares in that area. So your portfolio has a little bit of everything. If for some reason this theme doesn't come true, there is a big chance of losses. So, these ETFs should only be bought by investors who can handle high risk. Investors Who Want Long-Term Returns: It might take a while for a subject to reach its full potential. For example, we've known since the early 1990s that software and internet technologies had a lot of potential. But now, 20 years later, we can really see how these ideas work in the real world. So, it takes time and hard work to turn these topics into profitable investments. If you're an investor who wants to make money over the long term, thematic funds may be a good choice for you. People who are just starting out with investing are told not to put all of their money into themed funds right away.