Robust returns, distinct features driving popularity of thematic funds

During the past one year, thematic funds have given returns of 52.27% while large-cap funds have given average returns of 45.88%

Even as conventional equity funds have seen attraction of investors in the last one-year, thematic funds as a category are also witnessing attention. Strong returns and distinct features of thematic funds vis-à-vis large-cap funds are the key reasons they have seen net inflows in the last few months.

During the past one year thematic funds as a category have given returns of 52.27 per cent, shows data from Value Research, while large-cap funds have given average returns of 45.88 per cent.

Even among the thematic category, funds such as ICICI Prudential Commodities and Edelweiss Recently Listed IPO funds have given returns of 122.56 per cent and 72.89 per cent respectively in the last one year. The funds having themes related to manufacturing, services and business cycle have also done well in the last one year.

“Several of those funds have exposure towards midcap and smallcap stocks which have helped them to deliver better returns. Apart from that in terms of our economy we have done quite well and are recovering from the second wave of Covid-19 very fast, and we will continue to do well even going forward,” said Sunil Subramaniam, managing director, Sundaram MF.

Sundaram Services Fund and ICICI Prudential Manufacture in India funds have given returns of 69.27 per cent and 57.41 per cent respectively. Thematic or sectoral funds such as environmental, social and governance (ESG) and international funds have also seen new funds offered in the last few months which has helped them to attract investors.  

“Improvement on the coronavirus situation, along with pick up in the vaccination drive and the recovery rate have provided some comfort to the investors. Small caps and thematic funds have been the preferred investment choice for retail investors as they emerged to be the biggest beneficiary in the month of July,” said Gautam Kalia, head – investment solutions, Sharekhan by BNP Paribas.

In July, sectoral funds witnessed net inflows of Rs 5,728.54 crore—highest monthly flows in the current financial year. The net assets under management (AUM) of thematic funds stood at Rs 1.23 trillion in July as compared to Rs 1.1 trillion in April this year.

However, market participants say that given the current valuations in the equity markets, investors should not have a large proportion towards sectoral funds and have only 10-15 per cent of portfolio in such schemes.