Thematic funds are a category within Mutual funds that invest in companies aligned to a specific trend or idea like green energy, consumption, power, technology etc.
How is this different from a sectoral fund?
The key difference is that thematic funds can invest across multiple sectors, as long as the companies fit within a common narrative..
For example, a sectoral fund focussed on green energy would most likely have investment in companies directly involved with energy generation like solar power, or other renewable gases. A thematic fund, on the other hand, would take a broader view & not only invest in above companies but also in those that stand to benefit from trend, such as battery manufacturers, electric vehicle companies etc.
What are the risks associated with thematic funds?
They tend to be more volatile because their performance is dependent on a single theme. Any regulatory shifts, or global developments that impact the theme can cause underperformance in the portfolio
Best way to Invest in Thematic Funds?
Having considered above risks, if you are still very bullish on a specific theme like say green energy and want a diversified exposure across companies within that theme, then SIP (Systematic Investment Plan) might offer a prudent strategy. It helps reduce timing risk & instill an investment discipline.
Additionally, as a rule of thumb, it is recommended to limit the overall allocation to thematic funds to not more than max of 20% of the portfolio. It would also be wise to constantly monitor the performance & look out for macro economic factors which could adversely impact the overall fund.
To explore popular thematic funds, log in to the Upstox app and tell us in the comments — which theme would you bet on?