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.
Thematic investing focuses on specific trends, ideas, or sectors, allowing mutual funds to build portfolios aligned with these themes, offering investors exposure to targeted areas of the market.
The ideal investment horizon for thematic mutual funds may vary, but a long-term approach of at least 3-5 years is generally recommended to ride out market fluctuations and benefit from the theme's potential growth.
Thematic funds can carry higher risk due to their focused nature, as they concentrate on specific sectors or trends, making them more susceptible to market volatility compared to diversified funds.
Returns from thematic mutual funds depend on the success of the chosen theme; some may offer significant gains during favorable market conditions, while others may face challenges.
Investors should consider their risk tolerance, investment goals, and the specific theme's outlook before investing in thematic mutual funds, ensuring alignment with their overall financial strategy.
Powered by Bajaj Finserv Direct Limited