Thematic funds are booming – but are they worth your money? Experts weigh in
Thematic funds have become the talk of the town in the mutual fund space, with an increasing number of new fund offerings, and industry-wide data revealing that these funds are pulling in anywhere between ₹10,000 crore and ₹16,000 crore on a monthly basis.
While the surge in thematic funds might seem appealing to investors, are they worth your time and money? To shed light on this trend, CNBC-TV18 spoke to Feroze Azeez, Deputy CEO of Anand Rathi Wealth, and Ruchit Mehta, Head of Research at SBI Mutual Fund, to understand what is driving this popularity and how investors should approach it.
Feroze Azeez emphasised that there are two key reasons behind the rise of thematic funds. “There’s a limitation on how many diversified funds an AMC (Asset Management Company) can launch,” he said. Once AMCs have exhausted their primary offerings, they turn to thematic funds as a way to innovate and bring new opportunities to the table.
However, Azeez cautions that not all thematic funds are created equal. He believes that credible AMCs with strong research capabilities can offer significant value through theme identification. “When you’re launching a theme and collecting new money, it’s a message that this theme is good at that point in time,” he noted. Citing HDFC AMC’s defence fund, which delivered an 83% return in a year, Azeez highlighted the importance of timing and stopping fund inflows at the right moment.
Ruchit Mehta of SBI Mutual Fund further elaborated on the nuances of investing in thematic funds. “Investors need to carefully examine the business prospects of the theme,” Mehta advised, stressing that not every sector or theme will perform well consistently. He pointed out that the timing of entering a theme plays a pivotal role, as seen with SBI Mutual Fund’s Energy Opportunities Fund, which was launched when valuations were attractive, and the sector was under-owned.
Mehta also outlined three essential strategies for investors considering thematic funds. Firstly, research the theme thoroughly and ensure it has a long-term growth potential. Secondly, observe the allocations made by top AMCs in their diversified funds, as this can signal the sectors or themes fund managers believe will perform well. Lastly, always consult a financial advisor. “Advisors can provide valuable insights and guidance, as they frequently engage with AMCs and fund managers,” Mehta said.
Watch the accompanying video for the entire discussion.