Decoding Sectoral Vs Thematic Mutual Funds

A high-risk high-reward investment product may not be on the watch list of several investors, particularly the new entrants. But an aggressive approach, considering India's prospering economy and stable outlook, can translate into a huge wealth creation plan. Vardan Pandhare explores the investment opportunities of sectoral and thematic mutual funds in your portfolio

- Vardan Pandhare

One of the frequent idioms, used in sports, especially in cricket, is the word 'daring' - meaning bold or fearless. Considering the same in the realm of investment, being brave sometimes helps in attaining your financial goals quickly and securely as well. In the big gamut of mutual funds, two categories - sectoral and thematic mutual funds - are two such avenues, where a calculated risk can help you steer it clear towards wealth creation.

Sectoral versus Thematic Mutual Funds

Sectoral and thematic funds represent open-ended equity mutual fund schemes that focus on investing either in a singular sector or multiple sectors tied together by a central theme. Thematic funds cater to investors looking to allocate funds to stocks aligned with particular concepts, while sectoral funds offer targeted investment prospects within distinct sectors like IT, pharmaceuticals, automotive and FMCG, among others, all of which exhibit promising growth potential.

Both sectoral and thematic funds have the flexibility to invest across the spectrum of company sizes, encompassing large-cap, mid-cap and small-cap entities. Moreover, they are both required to allocate a minimum of 80 per cent of their total assets to the specific sector or theme that the fund centres around, adhering to the guidelines set forth by the market regulatory authority, SEBI. The performance trajectories of companies operating in diverse sectors such as banking, pharmaceuticals, automotive, metals, FMCG, IT, and more, are characterised by their distinct and evolving seasonal, cyclical and structural business cycles.