Thematic funds rise, but investor interest is fading

India’s mutual fund industry is facing a curious paradox, with asset managers doubling down on thematic and sectoral funds even as investors in new fund offers (NFOs) turn lukewarm towards them.

- Srushti Vaidya& Apoorva Ajith

Capital raised through thematic NFOs in the 12 months ended October 2025 plunged 52% from a year earlier, totalling around ₹33,712 crore, data from the Association of Mutual Funds of India showed. Further, the share of thematic and sectoral funds in overall NFO collections declined to 42% from 62% the previous year.

Yet, the pace of launches barely missed a beat -- mutual funds introduced 45 new thematic and sectoral NFOs in the 12 months to October 2025, virtually unchanged from the previous year's 44.

According to industry experts, the contradiction stems from a regulatory stricture barring mutual funds from having more than one scheme in categories such large-caps and mid-caps. However, the restriction does not apply to thematic funds and sectoral funds, index funds, and others. This prompts asset managers to craft schemes focusing on specific themes or sectors to attract new investors, as they are not subject to this restriction.

“When it comes to thematic funds, you can have as many thematic funds as you want, and every new launch of a fund is an opportunity for an AMC to incentivize distributors and get assets,” said Srikanth Meenakshi, co-founder at Primel Investor.