Investment is an important decision and must be made only after gathering sufficient and correct information. Often touted as the best investment instruments, Mutual funds are popular among investors for a variety of reasons such as ease of investment, the requirement of a minimum investment amount, impressive returns, diversified portfolio, etc.
However, investors often get confused between sectoral and thematic funds. This article aims to explain not only what these schemes are but also the difference between sectoral and thematic funds. Based on these key points, you can make an informed decision regarding which fund suits you the best.
A sectoral fund is a type of equity fund which invests at least 80% of its total assets in a particular sector like technology, pharmaceuticals, banking, FMCG, etc. A few examples of such schemes are:
- Aditya Birla Sun Life Banking & Financial Services Fund– It has invested around 87% of its assets in the financials sector (as of August 19, 2019).
- Reliance Pharma Fund– It has around 99% of its assets invested in the pharmaceuticals sector (as of August 19, 2019).
A thematic fund is the type of an equity fund which invests a minimum of 80% of its assets in a particular theme which comprises of multiple related sectors. A few examples of thematic funds are as follows:
- Mirae Asset Great Consumer Fund– It is a consumption theme-based fund that has its investments in multiple sectors, all of which are related to consumption. It has invested around 35% of its assets in FMCG companies, 19% in financials, 10% in automobiles and another 10% in the shares of companies that deal with consumer durables.
- Invesco India PSU Equity Fund– It is a thematic fund which invests in Public Sector Undertakings (PSUs). Invesco India PSU Equity Fund has invested around 61% of its assets in energy sector-related PSUs, 12% in financial PSUs, and the remaining in metals, engineering, and construction-related PSUs.
Also Read : Best Technology Funds in India
Sectoral Fund v/s Thematic Fund
- While a sectoral fund invests predominantly in a particular sector, a thematic fund places its bets on a theme which encompasses a number of sectors.
- Both sectoral and thematic funds are high-risk funds. However, a sectoral fund is perhaps an even riskier investment option than a thematic fund due to the relatively small number of companies it is invested in. This is because a sectoral fund invests a majority of its assets in a single sector. Thus, all its fortunes depend on the performance of that specific sector. However, a thematic fund is invested in multiple sectors, all of which are related to a particular theme. Thus, when thematic funds are concerned, investment risk gets diversified to a certain extent.
Which Fund is Right For You?
Firstly, to invest in either in a sectoral fund or a thematic fund, you must have a high-risk appetite as both of these funds relatively offer high-risk investment options. The factor which shall govern your choice between the two is the magnitude of risk. A sectoral fund comes with a relatively higher risk than a thematic fund due to the relatively limited investment choices. Thus, if your risk tolerance is high and you are seeking potentially higher returns, you should go for sectoral funds. However, if you wish to undertake a relatively lower amount of risk (in comparison to sectoral funds) for potentially impressive returns, you should choose thematic funds as your investment option.