Every year, we have Margi
Ganpati decorations adorning my home street. The decoration gets more and more
lavish every year. It is fascinating to know that every festival in India has
its own decorations and theme associated with it. On Republic day, the theme is
to dress up in tri color of our country. On Valentine’s Day, we dress up in Red
and for our auspicious occasions, we want to dress up in bright colors. Similarly
there are mutual funds which make investments, which match their investment
theme. Hence, they are known as ‘Thematic
Mutual Funds’. Today, we would
discuss about the background of these funds. We can call it an extension to the
sectorial funds.
Common features of the
Thematic Funds
a. Very
high risk – the
AMCs place their investment bets on any particular goals believing it to
outperform the broader index as a whole. So, believing in the strength of the
particular theme, the fund manager makes all his bets across the same sector to
gain maximum returns.
b. Mostly
Correlated Sector exposure
– Thematic funds are usually investment made in same or allied industries. For
example, if the theme is betting on gold theme- then the related mining,
refining and grading companies are expected to gain profit from it. It can even
be country based or a particular region based investment.
c. Cyclical
in nature- the
funds under thematic funds could be cyclical in nature. It has its own ups and
downs, which is in addition the broader index movement. They can be usually
called the fruits of the season. They are expected to be fundamentally strong
with the entire external environment favorable to their working.
d. Limited
investment options
for a fund manager- Even if a particular segment of the thematic segment is
less profitable over other, the fund manager has no scope of diversifying the
investment risk.
e. The
average time frame of thematic mutual funds is more than 5 years depending on the gestation time
of underlying theme. The generated returns can evaporate if we don’t exit the
investment at the right time.
Performance of few of thematic funds
in past
(Source-
valueresearchonline.com)
So, let’s all wait for flavor of the
upcoming week of the union budget bringing in more ideas for thematic funds.
Thanks and Regards
Team
Email: saarthifp@gmail.com
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