List of top 10 best-performing thematic mutual funds; Should you invest?

Thematic mutual funds invest in specific market themes like technology, healthcare, renewable energy, infrastructure etc.

Thematic Funds are gaining popularity in India's investment scene. Unlike diversified mutual funds that spread across various sectors, thematic funds focus on specific market themes like technology, healthcare, infrastructure, renewable energy etc. In the article, we will shed light on thematic funds, explaining how they work and whether should you consider investing in them.

What are Thematic Mutual Funds?
As the name suggests thematic mutual funds invest' in specific market themes or trends. These funds target companies tied to a particular sector, such as technology, renewable energy, or healthcare. They invest in stocks of businesses aligned with a specific theme; for example, a technology-themed fund focuses on companies driving technological innovations. The goal is to capitalise on a sector's growth potential, spanning from renewable energy and international stocks to infrastructure stocks.

Evolution of Mutual Fundsndia
In 2017, the Securities and Exchange Board of India (SEBI) introduced changes in the Mutual Fund industry to enhance transparency and comparability for investors. This involved categorisation and classification guidelines that have shaped today's Mutual Fund investment landscape in India.

The move aimed to clearly define funds, enabling investors to grasp their characteristics easily. This streamlined the industry, empowering investors to make informed choices by understanding the objectives, risk profiles, and strategies of different mutual fund schemes.

Types of Thematic Funds

• Business-Cycle Funds: These aim to benefit from economic cycles, investing in sectors expected to perform well during specific economic phases.
• Consumption Funds: These focus on trends in consumer behaviour, targeting sectors like retail, FMCG (Fast-Moving Consumer Goods), and automotive.
• ESG (Environmental, Social, Governance) Funds: These emphasize companies adhering to environmental, social, and governance standards.
• Manufacturing Funds: These invest in the manufacturing sector, covering heavy engineering and consumer goods industries.

Top 10 best-performing thematic funds

* Schemes are ranked according to their 3-year returns. Data as of March 26, 2024.

Who Should Consider Investing in Thematic Funds?

Risk-Tolerant Investors:
Thematic funds are among the riskiest mutual fund types. They focus on specific themes, limiting investment opportunities to related stocks. This concentration can lead to higher risks, especially if the chosen theme doesn't perform as expected. Therefore, investors comfortable with higher risks may find thematic funds suitable.

Long-Term Wealth Creators
Themes often take time to fully develop and show returns. For example, the potential of software and internet technology took years to materialise. Investors seeking substantial returns over the long term may find thematic funds appealing. However, new investors should gain experience before diving into thematic funds.

Informed Investors
Thematic funds cover multiple sectors related to the chosen theme. Investors with a good understanding of various sectors can make informed decisions about potential returns. Keeping abreast of news and trends across different sectors helps investors gauge the viability of the theme. Therefore, investors who stay informed and have a diverse knowledge base can consider investing in thematic funds.

Conclusion
Opting for a Thematic Mutual Fund is like placing your bet on the best player in an IPL game, rather than the entire team. These funds are ideal for those who firmly believe in the potential of a particular sector. Consult your financial advisor before making financial decisions. 

Disclaimer: The article is for informational purposes only and not investment advice.