Thematic funds is one in which funds contributed by investors are invested in shares of companies on the basis of a unifying theme. For example, the theme may be agriculture or infrastructure or commodities.
How different from Sector Funds
Whereas sector funds invest in the shares of a single sector such as FMCG, pharma, banking, IT, etc., thematic fund investments would be spread across more than one sector but linked to a specific theme.
Risk
The basket of thematic funds is broader and, therefore, these funds are less prone to price volatility and comparatively less risky than sector funds. However, these funds are riskier than diversified funds which have a broader spectrum of investments.
For Investors
Understand the objective of the fund thoroughly and make sure that your belief in the theme is in sync with that of the Asset Management Company that is floating the fund. These funds look at capital appreciation over a medium term period. Remember that the fund manager will be restricted in the portfolio that he can build and manage. Fundamentally, these funds fall in the high risk-reward matrix and are more suitable for investors with an appetite for risk. Exposure to thematic funds should preferably be limited to between 10% and 15% of a mutual fund portfolio.
How these thematic funds differ from sector funds? Sector Funds also invest in a particular sector , then how does it make thematic funds a different type of fund ? Though thematic funds seem vibrant and unique concept, investors should be quite cautious while investing in them.This is because thematic funds seem to disregard systematic risk factor attached to investment portfolio , which can be evaded only by diversifying.
Thematic funds are another fresh word for me. But I couldn’t spot much difference between thematic funds and sector funds. The post is interesting and could give a nice idea about thematic funds and its risk factors. It would be great if the author could give a tabular differentiation among the funds, to make it clearer.