Things to Know Before Investing in Thematic Funds

Mutual funds that invest across numerous sectors are called thematic funds. These themes or sectors can include FMCG, textiles, durables, travel and leisure, technology, healthcare and pharma, banking and financial services, etc.

Although these funds are known to provide excellent returns, picking a winning theme can be a task? Therefore, you must not be too eager to bite the bullet. In fact, before investing, be sure to consider the following factors. These tips can help you shortlist some of the top thematic mutual funds.

1. Have a long investment horizon

Experts state that you must have an investment horizon of at least 5 years when opting for thematic funds. Why? As a general rule of thumb, any theme or sector takes a significant amount of time to hit its peak. So, it may be a few years until you start collecting substantial returns.

2. Take a few chances

If you’re looking for exponential growth, opt for a theme or sector that hasn’t already hit its peak. This doesn't mean you shouldn't invest in popular sectors or themes like healthcare or technology. As a matter of fact, some of the best thematic funds to invest in 2022, like the Aditya Birla Sun Life Digital India Fund, come from this sector.

But, along with investing in safe and popular themes, you can take a few chances with sectors like next-generation automobiles.

Additional Read – Things to Keep in Mind Before Investing in Sector Funds

3. Assess your risk appetite

Since thematic funds offer high returns potential, they are also high-risk investments. And this is why you must stay invested for an extended period of time in them. If you're new to investing, experts recommend you diversify your portfolio in other types of debt and equity funds and invest a small chunk of your corpus in thematic funds. This is just till you learn the ropes.

4. Check your fund’s expense ratio

Know the expense ratio of your thematic fund, meaning the fee an Asset Management Company (AMC) charges for rolling out, managing, and marketing the fund. These fees are charged annually.

It may be unideal to invest in a fund with a very high expense ratio, as you might lose a significant percentage of your earnings to the fund house. Therefore, check this amount before investing.

5. Decide on investing a Lump sum or through SIP

You can either invest in thematic funds by paying a lump sum or depositing small amounts (as low as Rs. 500) every month through a Systematic Investment Plan (SIP). The latter might work especially well for newbies who want to diversify their portfolio to indirectly include thematic funds.

Additional Read – Everything About New Fund Offerings (NFO)

Before you go

Thematic funds are a great way to capitalize on growing sectors and industries.

If you're looking to invest in them, turn to the Tata Capital Moneyfy app and website. Through our digital portal, you can compare and instantly invest in some of the top-rated theme-based funds. You can also try a lump sum investment by starting a SIP through us.