With the ever-changing investment landscape, investors are constantly looking for new strategies to maximise their potential profits. With the emergence of thematic investing, investors have been presented with a new approach to invest in promising companies or industries belonging to a particular theme that are likely to thrive in the future.
Through a careful analysis of current industry trends and past performance, thematic mutual funds present the potential for significant returns through leveraging specific themes that can be derived from anything, such as commodities, stocks of international companies, and various sector-specific stocks. Given the importance of thematic funds, here is a detailed overview of thematic investing and how it can be beneficial for your portfolio.
Thematic funds meaning
Thematic funds offer investors an opportunity to gain exposure to companies based on specific themes and strategies. As per SEBI guidelines, the majority of asset allocation in thematic funds should be in equities and equity-related instruments.
Also, a lot of people may see sectoral and thematic funds as the same — but sectoral funds only invest in one sector, while thematic funds focus on stocks of different sectors that all relate to a certain theme.
An infrastructure theme fund provides exposure to industries such as power, real estate, and steel that short-term investors may not have the time or experience to analyse and invest in individually. Similarly, a manufacturing theme fund makes it possible to invest in associated companies within chemical, pharmaceuticals, and automotive markets.
5 Benefits of thematic funds
- Potential growth opportunities
Investing in thematic funds can provide potential growth opportunities as it allows investors to capitalise on trends or themes that may be gaining momentum. For example, investing in a clean energy fund could provide exposure to companies developing renewable energy sources, such as solar and wind power which could potentially increase in value over time.
Thematic mutual funds can also provide diversification within an investment portfolio which can help reduce risk by spreading out investments across different sectors and industries including chemical, construction, engineering, and others. Investing in different assets reduces the chances of suffering large losses if one sector or industry experiences a downturn as other sectors may help mitigate the associated risk.
- Expert-driven approach
Thematic funds are often managed by experts who have extensive knowledge of the theme or trend they are investing in. This means that they can use their expertise to select the best stocks and generate higher returns than if you were investing on your own. This allows investors to benefit from the experience and insight of professionals specialising in these themes or trends.
- Long-term focus
Thematic mutual funds often have a long-term focus which can help to smooth out market volatility and provide stability to an investment portfolio over time. This is because these funds typically invest in companies showing strong potential for growth over the longer term rather than trying to generate short-term gains through more volatile strategies. As such, thematic funds could be suitable for investors who are looking for stability and lower levels of risk within their portfolios over the long term.
- Easy accessibility to different companies
Thematic funds offer investors easy access to several companies that are dedicated to pursuing a specific theme. For example, a thematic fund with infrastructure as its focus could potentially invest in sectors such as steel, cement, and construction – allowing you to tap into each sector without having to research hundreds of individual stocks or shares first. It also makes investing easier by allowing investors to monitor their investments and track performance across multiple sectors at once.
How to invest in thematic funds?
With the range of investment options available – from mutual funds to exchange-traded funds (ETFs) and even individual stocks, there are various methods available to investors. For those who prefer a more consistent approach, an SIP (Systematic Investment Plan) allows for periodic contributions to thematic funds. Moreover, various mutual fund investment apps also help investors to purchase thematic funds online through lump sum or SIP contributions. With easy monitoring, faster transactions, and the ability to buy and sell funds instantly, these digital platforms make investing more transparent.
Although thematic schemes may offer a promising investment opportunity, it is equally important to consider important factors like the scheme’s investment objectives, risk profile, fund manager, etc., to make a well-informed decision. Moreover, as with any investment decision, the advice of an experienced financial advisor should also be taken for a better understanding of each scheme and whether it aligns with your current financial strategy.