Sectoral And Thematic Funds: Shiny And Snappy Stories Here To Stay?
Fear of missing out is gripping investors as sectoral and thematic funds have delivered more than 80% returns.
Fear of missing out is gripping mutual fund investors, as some sectoral and thematic funds have delivered more than 80% returns.
These big, dazzling numbers often push investors to build a portfolio with the best-performing themes, while others may feel pressured to increase the exposure they already have.
The sectoral and thematic categories saw a massive inflow of Rs 18,386 crore in July, while the numbers for June stood at Rs 22,351 crore.
There were 106 new fund offers in the mutual fund industry in 2024 so far. With the launch of more than 26 new fund offers since January, the sectoral and thematic category has become the largest actively managed scheme in the mutual fund space.
The inflows driven solely by the new fund offers add up to Rs 43,460 crore. The total inflows into the category so far in 2024 stand at Rs 85,964.37 crore.
The number of schemes in the category has also risen to 174 till date. The sectors with the most holdings are IT, banking, and health care along with others.
Which Themes Look Promising?
With massive inflows proving investors' trust in them, sectoral and thematic funds have become the "flavour of the season." Investors with portfolios exposed to sectoral and thematic funds have a lot of opportunities in this space.
"Some themes have delivered great numbers and we cannot remain purists of them," said Vijay Mantri, co-founder of JRL Money.
He recommends themes like banking and financial services, health care, manufacturing and consumption, which he believes will have value in the long term.
"If you look at the market through the old prism, investors will miss out big time," he said. There are themes that have the capacity to ride with the movement of the market and provide spectacular returns unlike any other, even in the long term, according to Mantri.
Financial Planner's Outlook
Despite the dazzling returns, increasing exposure without reviewing your portfolio's risk tolerance for these types of funds can be dangerous.
“Most investors are chasing returns, not the theme. The returns may sound like a promising long-term story but there is a recency bias in this category. Money is pumped in without considering longevity,” said Santosh Joseph, founder of Germinate Investment Services LLP.
When an investor increases exposure to themes chasing incredible returns, the question of sustainability remains. As such, timing the market is tough, and especially in this category, some themes may do extremely well in certain cycles alone.
"Today, thematics have build better narratives. Doubling down on the funds comes with the risk of your bets going wrong," said Joseph.
This is risky because one comes with a specific view about the theme that may or may not be right, he said.
Moves that are driven solely by fear of missing out or chasing short-term returns are never sustainable. It is the long-term potential of these themes that needs to guide the investor, as giving time for the themes to play out is important.
An investor also needs to think about downside protection and sustainability without getting caught up in chasing returns.
