What are Thematic Funds

A thematic fund is a specialized mutual fund - one where the fund's objective is to deliver optimal returns by investing in stocks which qualify to belong within the particular theme that is considered. The theme could vary from multi-sector, international exposure, commodity exposure etc...read on...

Unlike a sector fund, theme funds have a broader spectrum to operate in. Theme based funds are often mistaken to be sector funds. Although one could draw some broad comparisons, the scope of a theme fund is typically wider. 

Though they have a broader spectrum when compared to sector funds, but their spectrum is limited when compared to Diversified equity mutual funds. Thematic funds by nature are more prone to risk and volatility. The performance of these funds is dependent on the performance of a particular set sector or a theme, unlike a diversified fund which moves in line with the broader markets. Thematic funds could have themes ranging from Multi-Sector, International / Multi - Economy, Commodity, particular style of investing etc. Thematic funds are suited for investors who are well versed with market trends and are hence in a better position to take thematic calls.

It may be tough to understand the objective / real 'theme' of the fund by merely looking at the fund name. It becomes pertinent to read the prospectus, the investment objective, the fund manager's background and his past performance in handling other funds. For a novice investor to assess the right theme could be a herculean task, hence for someone starting out to invest in mutual funds, it is best that they stick to diversified equity mutual funds. 

Theme based funds should not be a part of one's "core" portfolio, the exposure should be categorically limited to 10% - 12% and one should add themes which complement the existing portfolio.

Cheers

Manoj Arora

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