Thematic Funds

Thematic Funds are defined as Funds that have portfolio cutting across multiple sectors. A Sectoral Fund necessarily need not be thematic fund, though it has a theme that is specific to the sector. In this aspect, a thematic fund is close to a diversified equity fund. But it differs from the diversified equity fund in its concetration to the theme that it follows. Wealth Builder funds, Contra funds, Lifestyle funds, FMCG Funds, MNC Funds, Technology Funds, ELSS Funds etc.. are all examples of thematic funds.


A theme is seasonal. We have seen Auto sector Funds and Power Sector funds redefine themselves in the past. when the sector suffers slow down, the theme losts its flavour. If we remove ELSS from the above list, all are seasonal themes at one or other point in time. tax Savings will continue to be an all weather theme in India.

Some of the themes like P/E and Dividend Yield are complimentary to each other; You can set your portfolio complete to get returns in all seasons irrespective of market's direction.
Another set of complementary themes consists of large cap, mid acp and small cap funds; When market pass through long term growth, stabilty or depression, you will be benefitting from the 'full diversification' . Todays small cap become tomorrow's mid cap and subsequently the large cap. When the market is depressed, your large cap will take care of you; When the stabilty is seen, both mid cap and large cap will take care of you; When in growth, you will benefit from the small cap. This need considerably large funds than P/E and D/Y combination for same objective of 'full diversification'

Still another theme that can be used with objective of 'full diversification' is using sectoral funds. But this approach will need even larger scale of funds than the above listed two approaches.

When funds proclaim asset allocation along these lines, it is important for investor to see if its risk-return space matches with that of his profile.

If you are a first time investor, thematic funds are not for you. It is best suited for the learned, knowledgable capital market players. A super affluent investor, or a class above that, can have thematic funds as they suffice in completing the diversification he needs. He may like to earn in all weather situations by amplyfying sufficient investment in all kind of sectors/themes that are available in the market. Even in theese cases more than 5-7% of deployment is not recommended by experts .


Finally one has to look at how skewed is the theme or how wide is the theme. For example an infrastructure fund if invests only in companies with facilities like port, airport, road projects, bridges; another infrastructure fund may define it to include basic industries like steel, cement etc.. a technology fund necessarily need not be IT Fund, it may be investing in companies that provide technology in the Media/Telecom/Pharmacuetical etc..


Recently there has been a thematic fund from IDFC that follows the GDP growth in the Indian Economy. It is different from the India theme funds of SBI One India Fund that restricts to 4 regions of India, LIC MF India Vision fund that envisages tactical investment only in large cap companies. Remember both are closed end schemes whereas the IDFC comes with an open ended variety.