Are thematic funds meant for you? Check benefits and risks

Apr1,2024



Theme-based investing sounds attractive, especially if you believe that shares Expect to perform well in a particular field. thematic fund One way to consider theme-based investing is. Let's understand this better:
As the name suggests, thematic funds are Investment Those who focus on specific themes by allocating a significant portion of their assets to related stocks. In recent years, fund houses have introduced various themes such as Public Sector Undertakings (PSUs), Infrastructure, MNCs, Business Cycle and Manufacturing funds. For example, a PSU fund includes stocks of entities like SBI, Coal India and ONGC. On the other hand, an infrastructure fund targets companies involved in sectors like construction and cement, such as Larsen & Toubro, UltraTech Cement and KNR Construction.
Thematic funds come with both greater risks and rewards than more diversified fund Like large-cap or multi-cap funds. An ET report said that while thematic funds have a narrower focus, leading to higher concentration risk, they are still more diversified than sectoral funds like IT or Pharma, thus having relatively lower risk.
Investing in these funds can yield significant returns when the economic environment is favorable, but may lead to losses in the short term due to adverse economic conditions. Additionally, the theme may take longer to materialize, potentially leading to weaker performance in the broader market.
financial expert Novice investors are advised to start with diversified equities mutual funds Before considering thematic funds. Thematic funds are suitable for investors who want to maximize returns and are willing to understand and accept the associated risks. It is suggested to allocate thematic funds as satellite portfolios along with a core portfolio containing diversified equity mutual fund schemes.
Investors can choose to invest in thematic funds through lump sum or systematic investments. A sequential approach may be beneficial if investors anticipate favorable events over time, while a lump sum investment is appropriate if they are confident that the theme can perform well at any time.



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