Thematic Funds Vs Sectoral Funds: What Are They & Which Is Better? I The Mutual Fund Show

Summary

The Mutual Fund Show on NTV Profit discusses the rapid growth of sectoral and thematic mutual funds, now the largest category in actively managed equity funds in India. Santos Joseph, founder of Germinate Investor Services, warns investors about the risks of chasing recent high returns in sectors like PSU, manufacturing, and logistics. He advises a cautious approach, suggesting no more than 20-30% of an equity portfolio in thematic funds and emphasizes the importance of diversification and a long-term investment horizon.

Takeaways

• 📈 The actively managed Equity mutual fund space is seeing rapid growth, especially in sectoral and thematic categories.
• 💹 As of July, sectoral and thematic funds hold the largest assets under management, with INR 4.21 lakh crore and significant inflows in the last three months.
• 🚀 The fastest growing categories include manufacturing, PSU, and transportation logistics, with impressive returns up to 100% in some cases.
• 📊 Recency bias is noted as a significant factor driving investments into these funds, with many investors chasing recent high returns.
• 📉 Santos Joseph advises caution, noting that while thematic funds have done well, they can also be subject to downturns and should be part of a balanced portfolio.
• 🔍 Investors are encouraged to consider the long-term sustainability and risk associated with thematic investments rather than just recent performance.
• 🌐 Diversification is key; thematic investments should be a part of a broader portfolio to mitigate risk.
• 💼 For new investors, it's suggested to start with diversified funds before moving into thematic or sector-specific funds.
• 💵 The script highlights the importance of having a prudent investment strategy, including a step-up SIP approach for long-term growth.
• 📊 The discussion also touches on the construction of portfolios, noting that some funds may hold stocks not traditionally associated with their theme.
• 📉 There's a warning against putting too much into a single sector or theme, especially for older investors or those with a shorter investment horizon.

Q & A

What is the focus of the Mutual Fund Show on NTV Profit and My?

The Mutual Fund Show on NTV Profit and My focuses on providing actionable insights on mutual fund-related topics, discussing strategies and themes in the mutual fund space.

What is the fastest growing category in actively managed Equity mutual funds?

The fastest growing category in actively managed Equity mutual funds is sectoral and thematic funds, which became the single largest category in terms of assets under management in July.

How much was the assets under management for the sectoral and thematic category in July?

The assets under management for the sectoral and thematic category in July was 4.21 lakh CR rupees.

How much inflows have come into the sectoral and thematic category in just the last 3 months?

Inflows into the sectoral and thematic category in just the last 3 months amounted to as much as 60,000 CR rupees.

What is the number of schemes available in the sectoral and thematic category?

There are as many as 174 schemes available in the sectoral and thematic category, making it the category with the most number of schemes.

What is the term used to describe the bias towards recent events influencing investment decisions?

The term used to describe the bias towards recent events influencing investment decisions is 'recency bias'.

What is the difference between sectoral and thematic funds?

Sectoral funds are more micro-focused on a specific industry, while thematic funds are broader and based on a particular theme or trend that cuts across multiple sectors.

Why are thematic funds currently favored over sectoral funds?

Thematic funds are currently favored over sectoral funds because they offer a broader range of stocks to invest in, providing more diversification and potentially better risk-adjusted returns.

What is the thumb rule regarding the percentage of one's portfolio that should be allocated to thematic and sectoral funds?

The thumb rule suggests allocating no more than 20-30% of one's Equity portfolio to thematic and sectoral funds to maintain diversification and manage risk.

What is the significance of SIP (Systematic Investment Plan) in mutual fund investment?

SIP allows investors to invest a fixed amount regularly, which helps in averaging out the cost of acquisition over time and also takes advantage of the power of compounding.

What is the advice for an investor who is considering investing a lump sum amount in a single scheme?

It is advised to exercise caution and consider a diversified approach rather than investing a lump sum in a single scheme, especially in a thematic or sectoral fund, to manage risk effectively.