As per the AMFI's monthly mutual fund performance tracker report, net inflows into the open-ended equity schemes continued to be positive for the second straight month in April. Among the different categories, thematic or sectoral funds netted the most inflows to the tune of Rs. 1705 crore as per a Groww report. On the other hand, the subcategories that saw outflows include multi-cap fund, dividend yield fund, value fund/ contra fund and ELSS schemes.
Here we will discuss some of the top thematic funds in terms of their performance. But before that's let's understand thematic schemes and their other basics:
What are Thematic/Sectoral Funds?
Thematic mutual funds are open-ended equity schemes that invest in pre-decided investment theme. Say for instance, the fund bullish on agriculture situation in the economy will bet on all such areas including fertilizer, chemicals, and sugar stocks among others.
Who Should Invest In Thematic Funds?
- High risk takers:
Thematic funds are typically ideal for those who can afford high risk as thematic or sectoral funds are the riskiest categories among the various mutual fund sub-categories. This is because the scope of investment in the fund gets restricted as the investment is limited to the pre-decided theme. Consequently the fund is semi-diversified and in a case when the theme does not augurs well owing to any of the fundamentals or technical's involved, the scheme might suffer substantially.
- Investor who has longer available term for the investment returns:
Higher returns are not generated overnight by any investment and same is the case with thematic funds that show up their best potential in some considerable span as the sector or the theme may take time to perform at its best. Buy by and large these schemes are not advised for new mutual fund investors.
- Well versed investors with know-how on macros, sectors etc:
Investor knowing about the macros of the economy, its dynamism and of the various sectors and the factors that influence them may be able to better pick the thematic funds as they are theme-based and may park their money into stocks from different sectors.
Difference between thematic funds and sectoral funds
Thematic funds deploy fund's corpus in some pre-decided theme which may include two or more sectors, while the sectoral funds are restricted to a paticular sector.
Key difference between thematic and sectoral mutual funds:
While many confuse them as one, there is some subtle difference between the two funds that must be known before the investment:
|Parameter||Thematic funds||Sectoral funds|
|Investment||Parked in a pre-decided theme basically attempt to tap a particular opportunity||Sector-specific like healthcare, energy, hospitality etc.|
|Diversification||More diversified as can include more sectors as per the theme||Less diversified being restricted to a particular sector|
|Performance tracking||May be difficult as one may not be sound enough to be updated on all of the sectors covered||Easy as the focus is on just one sector|
|Risk level||Highly risky||Moderately high risk|
4 Five-Star CRISIL Ranked Thematic Funds That Gave 1-Yr Return Of Up To 120%
|Scheme or fund name||CRISIL Rank||AUM( in crores)||NAV||6 month||1 year||3 year||5-year return|
|DSP Natural Resources and New Energy fund- (G)||5*||588.74||49.3||60.55%||120.00%||13.00%||21.00%|
|Invesco India Infrastructure Fund-(G)||5*||113.87||23.91||34.00%||61.00%||10.00%||14.00%|
|BOI AXA Manufacturing and Infra fund- (G)||5*||46.3||23.06||33.00%||77.00%||7.00%||15.00%|
|Sundaram Rural and Consumption Fund- (G)||5*||1269.4||48.59||13.00%||43.00%||4.00%||11.00%|
Note: Returns and NAV are as on May 14, 2021 and sourced from Money control website.
DSP Natural Resources and New Energy fund- (G):
CRISIL 5-Star rating for the fund indicates very good performance among peer schemes. Expense ratio of the fund is 2.5% and falls under the high-risk category investment as per the MF risk-o-meter. The fund's total investment into Indian stocks is 75% investment in of which 48.11% is into large cap, 23.4% is in mid cap and 2.38% in small cap stocks.
Rs.10000 invested in the scheme on May 12, 2020 is now value at Rs 21977, providing an annualized 1-year return of 120 percent. Some of the top holdings of the fund include Tata Steel, Jindal Steel and Power, Hindalco, Hindustan Zinc and SAIL among others.
Invesco India Infrastructure Fund-(G):
Another 5 star rated thematic fund from the Invesco Mutual fund AMC is a high risk mutual fund scheme. Expense ratio of the fund is 2.65%which is more than the category average of 2.51%. Fund has over 90 percent investment into Indian stocks of which the major chunk goes to the small cap stocks of over 40 percent.
A sum of Rs. 10000 invested on May 12, 2020 are now worth Rs. 16295, giving an annualized return of 62.95%. The fund's holdings comprise L&T, NTPC, KNR Constructions, RIL, Tata Steel, PNC Infratech and KEC International among others.
BOI AXA Manufacturing and Infra fund- (G):
Another high risk thematic scheme entails an expense charge of 2.53%. 98% of the scheme's investment is into Indian stocks of which the scheme is majorly invested into small cap stocks, while some of its investments are parked in G-securities. These schemes are primarily suitable for investors who have deep insight on the macros and wish to go for selective schemes that can produce higher return as against equity schemes.
Rs. 10000 invested on May 14, 2020 are now valued at Rs. 17684, providing annualized return of 77 percent. Top 10 stocks in the scheme's portfolio include Honeywell Automation, Tube Investments, Divis Lab, Dixon Tech, APL Appolo Tubes, Gujarat Gas etc.
Sundaram Rural and Consumption Fund- (G):
The scheme carries moderately high risk as per the Risk-o-meter and commands a lower expense ratio of 2.31 percent as against the category average of 2.36%. The fund is largely invested into large-cap scrips with 40% exposure in them.
Rs. 10000 invested in the fund as lump sum as on May 14 is valued at Rs.14337, generating an annualized return of 43 percent. The fund's holding comprises Tata Consumer, Varun Beverages, HUL, Asian Paints, HDFC Bank, Mahindra and Mahindra, ICICI Bank, Ramco Cements etc.
Taxation on Thematic funds
It is the post-tax return that matter in the long run and hence depending upon your holding period, taxation rules apply.
|Holding Period||Capital gain||Taxation rate|
|Is less than 1 year (units are sold off)||Short term capital gains||15%|
|Holding period beyond 1 year||Long term capital gain||10% ( on capital gains over Rs. 1 lakh in a FY)|