TIME TO SHIFT GEARS?

THERE HAS BEEN A SHIFT IN INVESTORS' SENTIMENT AWAY FROM SECTORAL AND THEMATIC FUNDS. IS THE CHANGE HERE TO STAY?

- BY RAHUL OBEROI

TRENDS DICTATE MANY aspects of our lives. Nowhere is this more visible than in the fast-moving world of investing. Take sectoral funds. In FY25 (till February), net inflows into these funds soared more than 200%. Thematic or sectoral funds—equity schemes investing in specific sectors of the economy—received net inflows of ₹1.46 lakh crore between April 2024 and February 2025 as against ₹46,138 crore in FY24. What fuelled this growth? Some attribute it to government-backed initiatives such as production-linked incentive (PLI) schemes, Make in India push and initiatives towards ‘Viksit Bharat’. Afterall, among the most sought-after funds were those investing in public sector undertakings (PSUs) and manufacturing/defence companies.

But the reversal has been real swift too. Monthly data indicates that after falling 41% to ₹9,017 crore in January, net inflows into sectoral and thematic funds declined nearly 37% to ₹5,712 crore in February. Money managers say the reasons for the dip are reduction in new fund offers (NFOs) and heightened market volatility. This raises an important question: Will sectoral funds continue to attract inflows, or is it time for investors to shift strategy and explore alternatives in underperformers like large-cap funds?

Deepak Ramaraju, Senior Fund Manager of asset management company Shriram AMC, says one must wait and watch. “Investors should exercise caution given the cyclical nature [of these funds], be selective and monitor macro-economic trends and sector-specific developments. Diversification and a keen awareness of market trends will be essential,” he says.

Meanwhile, sectoral and thematic funds saw new fund offers (NFOs) of ₹73,593 crore during April 2024-February 2025 compared to ₹1 lakh crore raised by the mutual fund industry from overall NFOs during this period.