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Thematic funds are steadily gaining investor attention, thanks to their promising potential. But what exactly are these funds, and how can they add an edge to your portfolio? Let’s dive in
In an era defined by rapid innovation and structural economic shifts, investors are looking beyond conventional equity funds. Enter thematic mutual funds—an investment avenue that allows one to ride transformative, long-term trends such as green energy, digital disruption, and the EV revolution. These funds are gaining traction for their ability to align portfolios with megatrends that are reshaping the world.
What Are Thematic Funds?
Thematic funds are equity mutual funds that invest in a group of companies linked by a common theme, regardless of their sector. For instance, a "Digital India" fund may invest in IT firms, fintech companies, telecom service providers, and digital infrastructure players—all contributing to the broader theme of digitization. The focus is not on one industry, but on a macro idea driving structural growth.
How Are They Different from Sectoral Funds?
While thematic and sectoral funds may appear similar, they differ significantly in scope. Sectoral funds invest strictly within one industry—for example, banking or healthcare. In contrast, thematic funds span across multiple sectors that are aligned with a central idea. This broader exposure helps in reducing concentration risk and provides better insulation during sector-specific downturns.
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Significance in Today’s Investment Landscape
Thematic investing is particularly relevant in today’s context, where policy reforms, technological breakthroughs, and evolving consumer preferences are changing the economic playbook. Government initiatives like “Make in India,” the green hydrogen push, or digital public infrastructure are not passing fads—they’re long-term narratives. Thematic funds allow investors to back these stories in a structured way and potentially benefit from early participation.
Key Benefits
These funds provide:
1. Targeted exposure to growth-oriented themes
2. Portfolio diversification across sectors within a theme
3. Alignment with personal values or macro convictions
4. Opportunity to ride long-term structural trends
5. Leverage policy-driven or global megatrends
6. Access to emerging and disruptive ideas
7. Flexibility in allocation strategy
8. Enhances return potential through tactical allocation
Investor Takeaway
Thematic funds are ideal for investors with a medium to long-term horizon, a higher risk appetite, and strong conviction in a specific idea. While they are not meant for core portfolio allocation, they can add an alpha-generating edge when chosen wisely and held with patience. We’re gearing up for a special feature on the best thematic PSU funds in the upcoming issue of Dalal Street Investment Journal. Stay tuned for insights that could power up your portfolio!