Retail investor interest in Indian mutual funds is on the rise, with a significant portion of new investments flowing into thematic and sectoral funds. Data released by the Association of Mutual Funds in India (AMFI) for June 2024 shows that these categories attracted over half (50%) of the total inflows into equity-oriented schemes, amounting to Rs 22,351 crore.
Sectoral Funds focus on companies within a single industry or sector, such as information technology (IT), pharmaceuticals, or banking. Thematic Funds, on the other hand, invest in companies across different sectors united by a common theme. The launch of 17 new open-ended mutual funds in June 2024 played a pivotal role in driving inflows, with nine of these NFOs belonging to the thematic and sectoral category.
“Inflows in equity funds have continued to record inflows for 40th months, with sectoral/thematic funds leading the way due to an increase in the number of NFO schemes,” said Sanjay Agarwal, Senior Director at CareEdge Ratings. Investors are diversifying their portfolios beyond traditional asset classes by focusing on specific themes with promising sectors like defense, consumption, and manufacturing.
Thematic and sectoral funds offer investors the opportunity to capitalize on emerging themes and sectors with growth potential. Asset management companies (AMCs) are responding to this growing enthusiasm by launching new offerings in niche areas like technology, transportation, and electric vehicles. While these funds offer the potential for concentrated returns, investors are advised to consider their investment horizon and risk tolerance before making decisions.
Some industry observers suggest that thematic funds can be a way for AMCs to offer multiple investment options within a broader theme, allowing them to cater to investor interest in specific sectors or trends without technically violating SEBI rules. As the market progresses, investors should prioritize risk management and be selective in their stock/sector choices.
Overall, the trend of thematic and sectoral funds reflects a growing investor desire for targeted investment opportunities beyond traditional broad-market funds. It is essential for investors to choose schemes that align with their financial goals and risk appetite to make informed investment decisions.