Sectoral funds invest only in companies of one sector without significant variety or diversifictaion. Thematic funds on the other hand invest in companies from different sectors that are tied to the theme idea driving the fund.
You can decide to invest in ideas that support your convictions or pick creative trends that are becoming more and more popular. For instance, you might choose to invest in US robotics/AI startups or global fintech firms. Thematic investments include even more wide sectors like emerging markets.
Thematic funds are one of the riskiest mutual fund categories. But with high risks, can come high rewards if your chosen theme starts performing exceptionally. One of the main benefits of thematic funds is that they offer considerable diversification. Since they are essentially equity-oriented mutual funds, the portfolio is diversified across various picks from the stock universe. That apart, thematic funds have the option of investing across different sectors and diversifying or adding different options to the portfolio. Moreover, since the portfolio is professionally managed, you don’t face the hassle of picking the right stocks for capital appreciation.
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