While the rise of thematic funds may seem attractive to investors, are they worth investing time and money in? To shed light on this trend, CNBC-TV18 spoke to Feroze Azeez, Joint CEO, Anand Rathi Wealth, and Ruchit Mehta, Head of Research, SBI Mutual Fund, to understand what is driving this popularity and how investors should approach it.
Feroze Azeez highlighted that there are two key reasons behind the rise of thematic funds. “There is a limitation on the number of diversified funds that an AMC can launch,” he said. Once AMCs have exhausted their core offerings, they turn to thematic funds as a way to innovate and generate new opportunities.
However, Azeez cautions that not all thematic funds are equal. He believes credible AMCs with strong research capabilities can offer significant value by identifying themes. “When a theme is launched and new money is raised, it sends a message that that theme is good at that time,” he noted. Citing HDFC AMC’s defence fund, which generated a return of 83% in a year, Azeez stressed the importance of timing and stopping fund inflows at the right time.
SBI Mutual Fund’s Ruchit Mehta further explained the nuances of investing in thematic funds. “Investors need to carefully examine the business prospects of the theme,” Mehta advised, stressing that not every sector or theme will perform well consistently. He pointed out that the timing of entering a theme plays a pivotal role, as was seen in the case of SBI Mutual Fund’s Energy Opportunities Fund, which was launched when valuations were attractive and the sector was undervalued.
Mehta also outlined three essential strategies for investors considering thematic funds. First, research the theme thoroughly and ensure it has long-term growth potential. Second, look at the allocations made by leading AMCs in their diversified funds, as this can indicate the sectors or themes that fund managers believe will perform well. Lastly, always consult a financial advisor. “Advisors can provide valuable insights and guidance as they frequently interact with AMCs and fund managers,” Mehta said.
Please watch the attached video for the full discussion.
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