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All About Thematic & Sector Funds

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Thematic and Sector Funds

Thematic and Sector funds belong to the category of ‘equity mutual funds. Generally, these funds are opposite to ‘diversified equity funds’ 

Sector Fund is a type of equity fund which invests 80% of its total assets; they merely focus on sectors like information technology, energy, banking, real estate, pharma mutual funds, etc.  

Thematic Funds invest in stocks which are very well-defined around a specific opportunity. These funds might seem to be similar to sector funds but may consist of multiple sectors. They invest minimum 80% of its total assets.  

ADVANTAGES OF INVESTING IN THEMATIC AND SECTOR FUNDS 

If you are thinking to invest money in a sector that has the potential of high-growth; in the end, you will notice that the price of the fund increases when the demand of the product is high. Therefore, if the growth trend for that particular theme or sector predicts continual demand, then your investment is good-to-go 

ANY PARTICULAR RISK? 

Whilst high growth in the chosen sector represents good news for the investor, certainly a downturn in the sector brings-in heavy losses. The lack of diversification in holdings is the reason behind this.  

The famous idiom states that investing in a sector fund equalizes to putting all eggs in one basket, but, if the basket were to fall, there will be breaking of all the eggs.  

But, with thematic funds, they turn out to be more diversified as compared to sector funds and are entirely dependent on one theme 

THINGS TO KEEP IN MIND BEFORE INVESTING N THEMATIC AND SECTOR FUNDS 

Following: 

  • Thematic and sector funds are suitable for those who have in-depth knowledge and understanding of that theme or sector. 
  • Never go by past returns whilst you invest in a thematic or sector funds.  
  • It is advised to own a diversified-portfolio that comprise of regular funds before opting for thematic or sector funds. They are known for their volatility and high risk.  
  • Be aware of exit-timing, especially whilst investing in sector funds because they are cyclical in nature.  

WHICH FUND IS RIGHT? 

Foremost, to invest in either a thematic fund or sector fund, you must be ready to take high-risk because both of them are relatively high-risk investment options. The factor you should consider whilst choosing between the two funds is the ‘magnitude of risk’. If not any of these, you can also opt for pharma mutual funds. The choice is all yours! Make sure you now the risk-appetite before you make any decision.  

 

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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.

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