What is thematic fund: List of best Thematic Funds in India

Thematic Funds are becoming popular in India’s investment landscape. Unlike broad-based Mutual Funds that diversify across many sectors, Thematic Funds focus on specific themes or trends in the market such as technology, healthcare or renewable energy. This blog will help you understand the concept of Thematic Funds, how they function and the factors one should consider before investing in these funds. 

Understanding Thematic Mutual Funds

Thematic Mutual Funds concentrate on specific themes or trends within the market. These funds target companies associated with a particular sector such as technology, renewable energy and healthcare. These funds invest in stocks of companies that align with a particular theme. For instance, a technology-themed fund will invest in businesses involved in technological innovation. The idea is to make the most of the growth potential of any given sector. The sectors can range from renewable energy and international stocks to infrastructure stocks. ICICI Bank offers many Thematic Funds to investors with different risk appetites and ambitions. 

The shift in India's investment landscape

In 2017, the Securities and Exchange Board of India (SEBI) implemented changes in the Mutual Fund industry to increase transparency and comparability for investors. It implemented certain categorisation and classification guidelines that have played an important role in shaping the contemporary landscape of Mutual Fund investments in India. This ensured that funds were clearly defined and investors could easily understand their characteristics. This move streamlined the industry and allowed investors to make informed investment decisions by giving them a clear picture of the objectives, risk profiles and strategies of different Mutual Fund schemes.

Why should you choose Thematic Funds?

Choosing a Thematic Mutual Fund is like betting on a particular player rather than the whole team. These funds are excellent for those who have a strong belief in the potential of a specific sector. For example, if you are optimistic about the growth of the electric vehicle market, you can invest in a fund that focuses on companies in this sector.

Performance of Thematic Funds

The performance of Thematic Funds can be more volatile as compared to diversified funds. This is because they are dependent on a specific sector. While some themes might perform exceptionally well in certain market conditions others might not. This variability makes it important for investors to not only choose their themes wisely but also monitor market trends regularly.

Types of Thematic Funds

Thematic Funds cover a wide range of themes, each with its own unique features:

Business-Cycle Funds

Aim to benefit from economic cycles, investing in sectors that are expected to perform well during certain economic phases

Consumption Funds

Concentrate on consumer behaviour trends, targeting sectors like retail, FMCG and auto

ESG Funds

Focus on companies that adhere to environmental, social and governance standards

Manufacturing Funds

Invest in the manufacturing sector that includes heavy engineering as well as consumer goods.

ICICI Bank's role in Thematic Funds

ICICI Bank offers many Thematic Funds, giving investors the option to invest in sectors they believe in. Experienced professionals who regularly assess market trends and make investment decisions manage these funds.

Factors to consider before investing in Thematic Funds 

Investing in Thematic Funds requires a clear understanding of the following:

1. Investment goals

   Ensure that the fund aligns with your long-term financial objectives

2. Risk tolerance

   Assess your comfort level with the potential volatility associated with a focused investment

3. Research

   Analyse the fund’s past performance, the theme’s potential and how it fits into your overall investment plan.

FAQs – Frequently Asked Questions

Q1: What makes Thematic Funds a good investment option?

Thematic Funds can be a good investment option if you have confidence in the growth potential of a specific sector and if you are planning to invest in the same for the long term. These funds offer an opportunity to benefit directly from the sector’s success.

Q2: Are Thematic Funds riskier than diversified funds?

Yes. Thematic Funds can be riskier because their success depends on a specific sector. Diversified funds spread risk across different sectors, potentially reducing the overall risk factor.

Q3: How do I pick the right Thematic Fund?

Picking the right Thematic Fund involves understanding your investment goals, researching different themes and assessing how well you understand the chosen sector. Reaching out to fund managers who work with institutions such as ICICI Bank can also help.

Q4: How often should I review my Thematic Fund investments?

One must review their investments regularly. It is important to review the investment either annually or when there are significant market changes. This allows you to understand whether the funds are still aligned with your investment goals and are performing as per your expectations.

Thematic Funds present a unique way of investing in specific sectors and trends in the market. They can add value to your investment portfolio but come with their own set of risks and rewards. It is crucial for investors to conduct thorough research, stay informed about market trends and ensure that these investments align with their broader financial goals. With careful consideration and patience, Thematic Funds can be a valuable part of a well-rounded investment strategy.