Since past one year, over a number of thematic funds have been launched in the market. Thematic funds are alike other equity mutual funds where the fund managers invest money in different sectors as well as companies of a specific theme. “These funds carry a single theme but may have stocks from different sectors,” voiced chief investment officer-equity at Kotak Mahindra Asset Management Co Ltd, Harsha Upadhyaya. For instance, if theme is financial services, the fund will include stocks from sectors like insurance, banking as well as mutual funds.
As per the data of Value Research data, approximately 50% of asset management companies provide thematic funds. In addition, investing in thematic funds just because a particular theme, like consumption, infrastructure or financial services, is looking positive is not a good decision.
Performance & parameters
It can be said that HNWI (High net-worth individuals) investors who can bear extra risk loss should opt the thematic fund.
Then, in terms of performance, thematic funds are recurring in nature. “Thematic fund portfolios usually invest in one or more sectors and hence, become cyclical in nature, resulting in heightened volatility in the portfolio. We believe that high volatility products are not best-suited for retail investors. Therefore being a retail-focused asset management company (AMC), we have avoided thematic funds so far,” states Alok Singh, a chief investment officer of BOI AXA Mutual Fund, one of the AMCs which does not offer thematic funds. Likewise, while considering thematic funds, one should look at the estimations.
The external situation can also play a vital role, for instance, macroeconomic aspects like GDP, prices of the crude oil and interest rate make or break a theme. “For instance, when it comes to automobiles, a robust GDP is a positive. Falling crude oil price and reduction in interest rates has a reasonably positive impact on this space too,” adds Chandak.
Previously, there have been times when sectors have had a worthy run yet ultimately they observe a downfall resulting in investors losing their money. For example, after registering a moderate CAGR of about 14% over the FY08- FY13, the growth of the pharmaceutical industry slowed down to approx. 10% CAGR over the FY13-FY18 due to the pricing regulations from 2013-14 ahead, as per the report of Crisil, a credit-rating agency.
“So a portfolio of investors who may have invested on the back of robust double-digit growth suffered in the last two to three years,” believes Prabin. Another case is the rising prominence of technology companies in the year 2000, enticing people to add further tech funds in their portfolio. “Some investors even had 60-70% of their portfolio bent towards IT stocks but after the dotcom bubble. They lost 40-50% of their portfolio value,” states Neeraj Chauhan, chief executive officer (CEO) of New Delhi-based The Financial Mall.
Several analysts advised retail investors in contradiction of investing in such a concentrated mutual fund as a key decision. Such as supervising the market movements, timing the market and choice to stay invested or not. It is in favor of the investor. “Irrespective of events happening in the economy, good or bad, the fund manager has to stay invested in thematic funds. Unlike diversified funds where the portfolio is flexible,” Upadhyaya says.