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Sectoral / Thematic Mutual Funds

As the name suggests, Sectoral funds are open-ended equity schemes with a large corpus of investment in a specific sector. These funds concentrate their investment portfolio on equities of companies across different market capitalizations in a particular sector. Some of the most common sectors in India are energy, infrastructure, healthcare, utilities, etc. View More

Sectoral funds can deliver market-beating returns to investors in favorable times when the specific sector is expanding and performing well. These funds allow people to use their knowledge of the market and economy to reap profits by investing in the best-performing stocks in a particular sector.

However, as these funds focus the portfolio on one sector, there is a higher concentration risk. There is less room for diversification, meaning the risk associated with sectoral funds is high. The losses associated with the funds can be huge when the market sees a bearish trend and the sector does not perform well.

The Indian economy comprises many sectors like pharma, banking, technology, etc. Some of these sectors can perform extraordinarily well in the medium to long term. Sectoral funds are aimed at helping investors capitalize on these opportunities. Moreover, these funds invest in companies from small to mid and large capitalizations; the only requirement is that they should come from the same sector.

Best Sectoral / Thematic Mutual Funds

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Who Should Invest In Sectoral Mutual Funds?

Sectoral funds can certainly be rewarding if investors can hit the right spot. However, due to a lack of diversification, they also have a high risk associated with them. So, one should only consider this type of fund after considering their financial goals, risk appetite, and investment horizon. Sectoral funds are an ideal investment option for: View More

Active and Informed Investors – Sectoral funds are unsuitable for beginners and inexperienced investors. Investments in these funds require timing the entry and exit right, which experienced traders struggle with. Active investors who are always on top of the latest news and happenings in the market can understand which sector is likely to perform well in the medium to long term. These funds are suitable for experienced investors with good knowledge of the sectors and insights based on thorough research.
Investors with a Good Risk Appetite – Sectoral funds invest in specific sectors and lack diversification which means they are high-risk schemes. Hence, investors comfortable with risky investments should only consider these funds.
Investors Interested in Tactical Allocation – Some sectors are cyclical, so investors willing to risk getting exposed to companies at the bottom of their cycle can invest in sectoral funds to make profits. You can choose a sector at the bottom of the cycle and hold the investment till it achieves its optimum performance before selling the funds to take profits.

Features Of Sectoral Mutual Funds

The primary features of sectoral funds are:

Sector-Focused – These mutual funds are focused on a specific sector. Funds can be categorized into different kinds based on the sector they belong to. These funds are not diverse and depend significantly on the sector’s performance. View More

High Returns – Almost 80% of the investment is put in equity instruments per the SEBI mandate, so sectoral funds offer outstanding returns. Also, they are all about grabbing the opportunity to profit from growing sectors. With proper research, investors can identify the right sectors performing well and select sectoral funds suiting their financial goals.
High Risk – For several reasons, sectoral funds are one of the riskiest investments. Firstly, being an equity fund, they are subject to risks from market volatility. Secondly, focusing on a specific sector reduces diversity and makes them prone to concentration risks. Lastly, if the fund encounters loss, selling the stocks won’t garner sufficient corpus, exposing you to liquidity risk.

Factors to consider while investing in Sectoral Funds

Here is a list of factors you can consider before investing in sectoral funds. View More

Investment Risks
These funds are concentrated and don’t diversify your portfolio. While other equity mutual funds invest in securities across sectors, sectoral funds are restricted within a sector and don’t allow taking advantage of other market sectors. This means if a sector does not do well, there is nothing else in your portfolio that can compensate. So, despite the vast return potential, this type of investment risks are pretty high.

Investment Goals
Investors thinking about putting money in sectoral funds should be clear about their goals. To achieve the maximum from the funds, you must plan to invest in these schemes for a minimum of five years. Any sector can take considerable time to show its best performance. This means they are suitable for long-term investment goals like funding children’s education, retirement, etc.

Expense Ratio
Another important thing you should be clear about before investing in sectoral funds is the expenses influencing your gains. The AMCs charge a fee for managing your sectoral funds, which is called the expense ratio. Knowing the exact charge, you pay per year is essential to calculate your investment returns.

Exposure Limit
One should consider investing in sectoral funds only as a part of a well-diversified portfolio. As the risk is relatively high for these funds, you should not give a lot of weightage to them in your portfolio. The exposure should be limited to 5-10 percent of your total investment.

Performance of the Sector
Sector trends are often cyclical. It is therefore wise to analyze the present and past performance of the sector you are interested in. As these are focused funds, it is essential to know their trends to be able to predict their future performance.

Taxability Of Sectoral Funds

As sectoral funds are equity funds, the capital gains from these funds are taxed like any other equity scheme. The gains earned from selling the sectoral funds are taxed according to the duration the investment is held for. View More

Short-term capital gains made from selling the units within a year of the investment are taxed at a flat rate of 15%, irrespective of your income tax slab. On the other hand, gains from any sectoral fund held for over a year are classified as long-term capital gains and are taxed at 10% if they are over 1 lakh INR. Gains of up to 1 lakh INR in any financial year are not taxed.

Risk Involved With Sectoral Funds

As sectoral funds consider investing mainly in equity instruments, they carry the following risks:

Risk of concentration – As these funds invest heavily in equity instruments, they carry a high concentration risk. This is why experts classify these funds as the riskiest mutual funds.

Liquidity risk – This is the risk a fund manager faces when he fails to sell the securities in a situation of loss.

Volatility risk – Market fluctuations directly influence these funds. If the underlying sector performs well, the fund may deliver significant returns. On the contrary, the sector’s poor performance can magnify the losses to a great extent.

Advantages Of Sectoral Funds

If your investment portfolio lacks exposure to a specific sector, sectoral funds offer an excellent way to invest in that sector. These funds allow exposure to the whole sector that is likely to grow. Here are the main advantages of investing in sectoral funds: View More

Not every sector moves in tandem with the economy. Many of them are cyclical in nature, which means you can expect huge returns by investing in sectors that show outstanding performance. Based on your analysis and research, if you enter at the right time and hit the right spot, there is a chance of earning huge returns through sectoral funds.
Though sectoral funds don’t offer diversification in industries and asset classes, they are pretty diverse regarding market caps. These schemes invest in multiple companies across different market capitalizations to balance the investment portfolio. Even when some equities don’t perform well, others outweigh them.
The most impressive benefit of investing in sectoral funds is their ability to deliver inflation-beating returns. Investors can consider adding these funds to their portfolio to leverage a growing sector to meet their financial goals.
Sectoral funds are the perfect investment option for those looking to benefit in the long term. Investing in a sector likely to perform well in a few years can help fulfill long-term financial goals like retirement planning.
Another advantage of investing in sectoral funds is that professional fund managers manage these schemes. If you have confidence in a sector and cannot select the companies to invest in, you can invest in these funds through professional management to get significant returns.

Popular Sectoral / Thematic Mutual Funds

  • Fund Name
  • Min SIP Investment Amt
  • AUM (Cr.)
  • 3Y Return

Aditya Birla SL Digital India Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 01-01-13 and is currently under the management of our experienced fund manager Kunal Sangoi. With an impressive AUM of ₹3,717 Crores, this scheme's latest NAV is ₹148.49 as of 17-08-23.

Aditya Birla SL Digital India Fund – Direct Growth scheme has delivered a return performance of 13.4% in the last 1 year, 27.8% in the last 3 years, and an 21.9% since its launch. With a minimum SIP investment of just ₹1,000, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹1,000
  • AUM (Cr.)
  • ₹3,717
  • 3Y Return
  • 13.4%

Tata Digital India Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 28-12-15 and is currently under the management of our experienced fund manager Meeta Shetty. With an impressive AUM of ₹7,573 Crores, this scheme's latest NAV is ₹39.3508 as of 18-08-23.

Tata Digital India Fund – Direct Growth scheme has delivered a return performance of 7.4% in the last 1 year, 27.4% in the last 3 years, and an 19.6% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹7,573
  • 3Y Return
  • 7.4%

ICICI Pru Technology Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 01-01-13 and is currently under the management of our experienced fund manager Vaibhav Dusad. With an impressive AUM of ₹10,722 Crores, this scheme's latest NAV is ₹159.49 as of 18-08-23.

ICICI Pru Technology Fund – Direct Growth scheme has delivered a return performance of 7% in the last 1 year, 28.7% in the last 3 years, and an 22% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹10,722
  • 3Y Return
  • 7%

Franklin India Technology Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 01-01-13 and is currently under the management of our experienced fund manager Anand Radhakrishnan. With an impressive AUM of ₹873 Crores, this scheme's latest NAV is ₹379.6414 as of 18-08-23.

Franklin India Technology Fund – Direct Growth scheme has delivered a return performance of 18% in the last 1 year, 20.9% in the last 3 years, and an 18.7% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹873
  • 3Y Return
  • 18%

SBI Technology Opportunities Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 10-01-13 and is currently under the management of our experienced fund manager Saurabh Pant. With an impressive AUM of ₹3,080 Crores, this scheme's latest NAV is ₹170.5665 as of 18-08-23.

SBI Technology Opportunities Fund – Direct Growth scheme has delivered a return performance of 10.6% in the last 1 year, 28% in the last 3 years, and an 20.8% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹3,080
  • 3Y Return
  • 10.6%

Sundaram Consumption Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 02-01-13 and is currently under the management of our experienced fund manager Ratish Varier. With an impressive AUM of ₹1,241 Crores, this scheme's latest NAV is ₹76.6827 as of 18-08-23.

Sundaram Consumption Fund – Direct Growth scheme has delivered a return performance of 13.4% in the last 1 year, 21.3% in the last 3 years, and an 14.9% since its launch. With a minimum SIP investment of just ₹100, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹100
  • AUM (Cr.)
  • ₹1,241
  • 3Y Return
  • 13.4%

ICICI Pru Commodities Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 15-10-19 and is currently under the management of our experienced fund manager Lalit Kumar. With an impressive AUM of ₹1,079 Crores, this scheme's latest NAV is ₹31.31 as of 18-08-23.

ICICI Pru Commodities Fund – Direct Growth scheme has delivered a return performance of 19.3% in the last 1 year, 40% in the last 3 years, and an 34.6% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹1,079
  • 3Y Return
  • 19.3%

Kotak Infrastructure & Ecoc. Reform-SP-DirGrowth is an Sectoral / Thematic scheme that was launched on 01-01-13 and is currently under the management of our experienced fund manager Harish Krishnan. With an impressive AUM of ₹1,048 Crores, this scheme's latest NAV is ₹51.222 as of 18-08-23.

Kotak Infrastructure & Ecoc. Reform-SP-DirGrowth scheme has delivered a return performance of 26.7% in the last 1 year, 38.3% in the last 3 years, and an 17.8% since its launch. With a minimum SIP investment of just ₹100, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹100
  • AUM (Cr.)
  • ₹1,048
  • 3Y Return
  • 26.7%

Mirae Asset Great Consumer Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 02-01-13 and is currently under the management of our experienced fund manager Ankit Jain. With an impressive AUM of ₹2,552 Crores, this scheme's latest NAV is ₹78.519 as of 18-08-23.

Mirae Asset Great Consumer Fund – Direct Growth scheme has delivered a return performance of 17% in the last 1 year, 25.9% in the last 3 years, and an 17.9% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹2,552
  • 3Y Return
  • 17%

Nippon India Power & Infra Fund – Direct Growth is an Sectoral / Thematic scheme that was launched on 02-01-13 and is currently under the management of our experienced fund manager Sanjay Doshi. With an impressive AUM of ₹2,484 Crores, this scheme's latest NAV is ₹230.0099 as of 18-08-23.

Nippon India Power & Infra Fund – Direct Growth scheme has delivered a return performance of 34.7% in the last 1 year, 33.5% in the last 3 years, and an 13.4% since its launch. With a minimum SIP investment of just ₹5,000, this scheme offers a great investment opportunity for those looking to invest in Sectoral / Thematic funds.

  • Min SIP Investment Amt
  • ₹5,000
  • AUM (Cr.)
  • ₹2,484
  • 3Y Return
  • 34.7%

Frequently Asked Questions

Who should invest in thematic Mutual funds?

Thematic funds are ideally suited for investors with high-risk appetites and a certain conviction regarding the oncoming broad-based trends they are interested in pursuing.

Investors risk a substantial downside due to high exposure to specific trends and themes. These opportunities fail to materialize, which is why it is best suited for investors with a diverse portfolio of other assets, which can protect any substantial losses from such concentrated holdings.

How does thematic investing work?

In a thematic fund, portfolio managers often pick stocks that revolve around a particular trend or idea.

For example, if robotics is believed to have a shining future in the coming years, the thematic fund focused on the same will allocate assets to stocks such as ABB, and KUKA, which have a strong robotics play, along with integrators and managed service providers such as Infosys, TCS, and HCL.

With this, investors with high levels of conviction regarding the vibrant future of a particular sector can make the most of it with concentrated exposure to the same.

What are the main differences between sectoral & thematic funds?

While the differences are already quite evident, at their core, both concepts aim at differing objectives and target different breeds of investors.

A thematic fund usually takes a long-term view of various macroeconomic, geopolitical, and technological tailwinds and aims to capitalize on the same. These aren’t for investors who are looking to capture swings in the market.

On the other hand, a sectoral fund is focused on a particular sector. It is usually the purview of investors and traders looking for exposure owing to upcoming short-term events. They are also used for hedging when anticipating pullbacks in the broader market.

Are sectoral Mutual funds risky?

Any fund with allocations concentrated in a particular sector remains vulnerable to headwinds affecting that sector.

For example, rising interest rates can have a major short-term impact on real estate and construction stocks, so a fund focused on this sector can witness a significant drawdown across all its key holdings.

Such funds are mainly suited for investors who already maintain a portfolio of diverse holdings and are looking to spruce returns or hedge against certain events.

Which trends & opportunities can be pursued with thematic investing?

Thematic funds have witnessed quite the frenzy in recent years, and new funds and options continue to spring up every few weeks, targeting specific trends and the investors who want to make the most of it.

Any long-term secular opportunity can be tapped into, including climate change, ESG, machine learning, fintech, and more. 

There are, infact, thematic funds dedicated toward emerging market holdings, space exploration, and even video games.

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