ET Classroom: Decoding the difference between sectoral and thematic funds
thematic funds is an equity mutual fund category that received the highest inflows of ₹70,000 crore in the past year. It is now the second-largest category in the equity mutual fund space after flexicap funds.
What are Thematic Funds?
Thematic funds are a category of MFs that invest at least 80% of their total assets in stocks of a particular theme. Some of the popular themes with investors and launched by fund houses in the recent past are manufacturing, real estate, tourism, energy and automotive, BFSI, and PSU funds. For example, the manufacturing fund is a thematic fund that predominantly invests in a diversified portfolio of sectors like auto and auto ancillaries, capital goods, healthcare, chemicals, oil and gas and consumable fuels.
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Who should consider a thematic or sectoral fund?
Wealth managers suggest investors build their core portfolio with diversified equity mutual funds and allocate a small satellite portion to thematic funds. They believe first-time investors should avoid thematic funds and start with diversified equity funds. Once your core portfolio is built and you are looking to generate alpha in portfolios and understand the risks associated with it, you could opt for a sectoral fund.
How should money be deployed in these funds?
Like any equity-oriented scheme, investors can make lump sum and systematic investments in these schemes. If investors believe certain events unfolding over a year
