A Checklist before investing in Thematic Mutual Funds

A Checklist before investing in Thematic Mutual Funds

Value Funds and Thematic Funds are back in focus since Jan 2021.  Value, Pharma, Tech Sectoral funds has delivered more than 40% returns in last 1 year.  But the question is should you invest in Thematic Funds?

When it comes to Mutual funds remember the basic rule, which is diversification. You invest in Mutual Fund to diversify the risk. Direct Equity are risky and mutual fund helps you to spread your hard-earned money to larger universe.

Sectoral Fund is more specific and focused fund with one particular Industry. You have plenty of choices like Pharma Funds, IT, Global Innovation and Disruption, PSU, ESG, Renewable Energy, Banking & Financial Services, Greater China, US Tech Etc.  So actually, the sectoral funds are going against the strategy of diversification and increases the Concentration Risk.

Many new investors are investing in these Sectoral Funds by just seeing only the Historical Returns. Which is a bad investment strategy.  Check these pointers before you invest your hard-earned money into Thematic Funds.

1. Your Sectoral Fund exposure should be a little / Small percentage to your overall MF Portfolio. Never over board and keep your thematic investment strategy as core portfolio.

2. When you choose a sectoral fund, have a clear understanding of valuations. In the year 2000 few mutual companies launched IT sectorial Fund, at that time IT sector valuations were at the peak. Similarly, many investors also invested in Infrastructure Funds NFO in 2007 and created huge losses to investors.

3. Be careful about the Theme – Check whether this is a high conviction idea / strategy.  Check out the logic, statistics and rationale, don’t buy schemes with just hope.

4. Thematic investment involves High Risk Appetite. Analyze that can you absorb that larger risk when you invest with Thematic Funds

Conclusion – Thematic Funds offers good opportunity to get excess and high returns. There is nothing wrong in buying thematic funds, you just have to keep them within the limits.

Connect with me for your smarter investment decisions @ 9841058689. One call can change your finance forever.

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Sathish Kumar

Mutual Fund Distributor | Author | Speaker

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