Thematic Funds


What are Thematic Funds?

As the name, ‘thematic’ suggests, thematic funds invest in sectors and industries that are tied to a particular theme. Fund manager of Thematic funds tries to identify a specific theme emerging out of current economic trends and invest in those companies encompassing that theme, which can be highly rewarding. Thematic fund managers seek to make the most out of such windows of opportunity. Thematic Fund is a type of equity mutual fund for aggressive investors.

However, don’t mistake between a sector fund and a thematic fund. Sector Funds invest in a single sector only. Whereas, thematic funds invest in sectors or businesses with common growth drivers or similar selection factors.

How Thematic Funds Work? Thematic funds are introduced by fund houses when they identify a well-defined theme as an opportunity to invest and grow investors money.

Thematic funds are a type of equity mutual fund and invest 80% of asset allocation to equities and equity-related instruments as per the SEBI (Securities and Exchange Board of India) mandate.

They invest across sectors in an array of companies that are centered around a theme that might show huge growth potential due to various economic indicators. For instance, a thematic fund focused on rural development may invest in the chemical, fertilizer, automotive, core agri-product and other industries. These firms may operate in various industries and have various capitalization levels, but they can support the development of a single concept.

Thematic funds investment is focused on companies and segments that are related with the theme that they aim for. The rewards can be benchmark beating and can fetch higher returns than other equity funds.

They are a high-risk and high-return fund. In favorable market conditions the returns can be skyrocketing and at the same time when the markets are down, it can incur huge losses.

Benefits of Investing in Thematic Funds:

Thematic funds can provide potential growth opportunities.

Diversification: For diversification within an investment portfolio as you can choose to invest in thematic funds through a variety of channels, such as mutual funds or exchange-traded funds (ETFs). Investors get access to a range of companies that are within a specific theme which are difficult to access through individual stock picking.

Expert management: Thematic funds are managed by investment professionals who have in-depth knowledge of the specific theme which can result in generating higher returns.

Potential for long-term returns: Due to a long-term focus, these funds can take into consideration the market volatility and also provide stability to an investment portfolio.

Points to Consider Before Thematic Investing: Investors looking for investment in thematic funds should bear certain factors in mind as mentioned below:

Investor profile: They are suitable for aggressive investors as market volatility is its primary constituent. It is further recommended for investors who are experienced enough to understand the market cycles and if exposure to specific ideas will offer optimum returns

Investment horizon: It is advisable for medium to long term investment of 5-7 years at least and preferably 10 years.

Fund Managers: Take a look at fund managers historical performance across various market cycles, qualifications and experience. Because, stocks are actively identified, selected by fund managers and the returns depend on stock selection.

Expense Ratio: It is the annual fee that the fund houses charge to manage your funds. It is better to select the funds with a low expense ratio if two or more funds rank similar in all other aspects.

Tax implication:

Dividend Distribution Tax (DDT): When a fund house pays dividends, it deducts DDT of 10% at the source before making the payment.

Capital Gains Tax: On redeeming the mutual fund units, you earn capital gains – which are taxable.

Short Term Capital Gain (STCG) = The capital gains earned by you for a holding period of up to one year.

Long Term Capital Gain (LTCG)= The capital gains earned by you for a holding period of more than one year.

Conclusion:

You may invest with the aim of building wealth via many cycles of market and economic movements. These funds should be taken into consideration by those who are well-versed in the market and the different macroeconomic aspects that affect it.

As an opportunistic investor if you pick the appropriate theme at the right time, these underlying assets can yield substantial returns; else, they are a risky investment. It is suited for both experienced and high-risk investors, who can wisely utilise the sectors weaved around a theme as well as which industries will perform and what themes may emerge. It is similarly crucial to keep a close eye on the market to understand when to enter and depart in order to maximize the short profitable lifespan before suffering losses.

                                                           Blog | Visit Our Website | Investment 

Location: India

Comments

Post a Comment

Popular posts from this blog

What Is a Dividend and How Do They Work

Image
Investors anticipate the yearly results of the firms in which they own shares every year around mid-February after the third quarter results. Big companies pay dividends after the annual results. Some companies pay twice a year and some pay thrice a year, but the one paid at the end of the year is by far the biggest amount.  Most profit-making companies pay dividends when they announce their annual results. It makes sense that Indian investors eagerly await the big, fat payouts from stocks with high dividend yields. Unhappy shareholders frequently complain about "the low dividend this year" at AGMs. It's fair to say that for many investors who have become accustomed to getting substantial dividends year after year, the annual or "last" dividend is a sensitive matter. Why Invest in Dividend Stocks? Dividend-paying stock stabilizes the portfolios of conservative investors. Investor confidence in these equities is boosted by this. And as a result, the market is giv...
Read more

AN AGENT OR BROKER OR ONLINE - WHOM SHOULD WE BUY INSURANCE FROM?

Image
As stated in the article's description, choosing between an agent, broker, and internet platform while purchasing insurance coverage is crucial and difficult for a newbie. Insurance is a very straightforward product that involves paying a premium to cover the risk and receiving payment from the insurance provider in the case of a covered incident occurring.   It is comparable to a consumer, trading money for goods or services. We observe clients buying and selling goods and services, just like in any other business. Due to the fact that it depends on variables beyond the consumer's control, the estimated insurance payout varies. The fact that working with insurance companies is difficult and the subject is complex is nevertheless widely understood. It's easy to understand why. The insurance company will ensure that the sum being released is justified because, if and when it pays out, the amount will be significantly more than the premium the policyholder paid. This expl...
Read more

UNDERSTANDING THE COSTS ASSOCIATED WITH INVESTING IN MUTUAL FUNDS

Image
  Investors should carefully analyze the overall expense ratio, or expense ratio, before making a mutual fund investment. It is a sum that is out of sight but has a direct impact on the total returns that are received. The overall costs spent by a mutual fund plan are shown by this ratio. Investors tend not to focus much on this number because they tend to be more interested in the returns being generated. It is crucial to comprehend how the overall expense ratio is determined as well as how things are changing in general because it has a big impact. Annual percentage figure The annual percentage amount that goes towards paying running expenditures can be estimated using the overall expense ratio. The ratio includes expenses for fund management fees, advertising, sales and marketing, and even other administrative costs associated with keeping the fund in operation. The portion of the return that goes towards covering operating expenses is indicated as a percentage. The expense rati...
Read more