Riding the wave: Why sectoral and thematic funds are thriving this year

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active mutual fund flows so far this year. In June alone, inflows into these funds reached ₹22,350 crore, accounting for 55% of total active flows, an 18 July research report by Elara Securities said. Since the beginning of this year, thematic and sectoral funds have attracted ₹70,000 crore in inflows.

Manufacturing funds have captured a significant 28% of these inflows, and infrastructure funds 8%. In absolute terms, around ₹19,500 crore has flowed into manufacturing funds and ₹5,900 crore into infrastructure funds. The overall skew has shifted towards sectoral and thematic funds with greater urgency in Q1FY25, said Mahesh Patil, Chief Investment Officer, Aditya Birla Sun Life AMC.

“In Q1FY25 alone themes like manufacturing and infrastructure saw flows that were seen in entire FY24." Typically, thematic funds perform well when the economy is strong, benefitting from favourable market conditions and investor optimism. During economic expansion, specific sectors and themes that these funds focus on see heightened growth. Investors are willing to take risks and invest in targeted strategies that capitalize on emerging trends and opportunities, leading to higher returns for thematic funds.

India's thriving economy has sparked investor interest in thematic and sectoral funds, driving their popularity, said Rahul Singh, chief investment officer - equities at Tata Asset Management. For example, growing interest in theme-centric manufacturing funds can be attributed to several factors, including China-plus-one strategy and production-linked incentive schemes, which highlight India's long-term growth potential. Similarly, the energy sector, both traditional and renewable, is gaining momentum due to increased demand driven by