The total assets under management (AUM) under these funds saw an increase of more than seven-fold to Rs 4.45 lakh crore by August 2024, up from Rs 59,239 crore in August 2019.
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Despite the significant increase in inflows into sector and thematic funds seen over the past five years, investors should exercise caution when investing money in these funds, according to a press release from EXECUTION Analytics.
It is important to stay updated with the latest market trends and economic developments and one should make well-informed decisions while investing in these funds, the statement said.
There are 120 thematic funds and 65 sector funds In total, at present, the compounded annual returns of the thematic funds are 46.06% for one year, 21.29% for three years, 24.07% for five years and 16.85% for seven years. The sector fund returns are 44.66%, 20.53%, 24.77% and 16.95% for one year, three years, five years and seven years respectively. The government has been extending support to areas such as public sector undertakings, defence, railways, power and shipbuilding and this has encouraged fund houses to launch new schemes in these categories. So far, around 23 new thematic funds and 5 new sector funds have been launched since the beginning of this calendar year, the statement said.
“Investors, particularly in the retail segment, are looking for new growth opportunities and are exploring avenues to generate alpha or higher returns. This explains the heightened activity in such funds, which have witnessed a seven-fold increase in assets under management in the last five years,” said Ashwini Kumar, Senior Vice President and Head – Market Data, ICRA Analytics.
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“These funds are suitable for those investors who understand the dynamics of specific sectors or themes and can effectively assess their growth prospects and risk-taking capacity. It is therefore imperative for investors to stay updated on the latest market trends and economic developments and make well-informed investment decisions,” he added.
These funds have a bias as they lean towards one theme or sector. In case the sector or theme in question experiences some headwinds, the entire fund may start underperforming as it has a large exposure to a particular sector. This is in stark contrast to a diversified fund as it has exposure to multiple sectors and is well insulated from such sectoral shocks, though it is not completely immune to them.
“It is therefore important for investors to monitor the sector on an ongoing basis and rebalance their portfolios periodically based on market developments,” Kumar said.
Entries in equity mutual funds The banking sector registered a strong momentum for the fifth consecutive month since the beginning of this financial year. Inflows rose nearly 89% to Rs 38,239 crore in August, from Rs 20,245 crore last year. On a monthly basis, inflows rose around 3% from Rs 37,113 crore in July 2024.
Net inflows into the mutual fund industry rose more than seven-fold to Rs 1.08 trillion in August, compared with Rs 14,385.93 trillion a year ago, as retail investors, who are optimistic about the country’s growth prospects and positive sentiments, continued to invest. However, on a month-on-month basis, net inflows fell nearly 43% from Rs 1.89 trillion in July 2024, mainly due to a 62% drop in inflows to debt mutual funds.
“Resilient domestic financial market and positive sentiments seem to augur well for the Indian mutual fund industry. This is reflected in the increased capital inflows mutual funds “which increased more than 89 percent year-over-year,” Kumar said.
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