Mutual Funds: Sectoral, Thematic Schemes Rule Equity Flows in Sept ’23

The sectoral and thematic mutual fund schemes have witnessed inflows of Rs 22,837 crore, close to only small-cap mutual funds and 18% of the total equity flows in the past year ending September 30, 2023. 

About 75% of the flows came through new fund offerings (NFOs). The September quarter witnessed investors putting in Rs 9,381 crore, which accounted for 41% of the flows, as against Rs 905 crore, which was the lowest inflow seen in the June quarter. 

Experts are of the view that when the market index is on an upswing during a bull run phase, it is common for investors to zero in on a theme, riding on the hope of beating the market.

Typically, thematic funds are focused on specific themes or trends; this could be clean energy, technology, and healthcare, among others. The core objective of such mutual funds is to invest in companies related to a particular chosen theme, aiming to capitalise on growth opportunities and generate significant returns for investors. An investor is required to be patient with thematic funds. 

Thematic funds have gained more momentum among manufacturers as they offer broader investment opportunities as compared to sector funds. However, the investment universe of such funds is quite restricted as compared to diversified funds.

However, experts advise investors to stay away from investing huge sums in sectoral funds as they have higher risk considering their concentrated exposure to specific sectors. 

Such funds are more suited to seasoned investors who are well-versed with market cycles and are seeking a larger allocation to certain sectors, such as information technology (IT) and pharma, as compared to what’s available in diversified funds.

Markets regulator, the Securities and Exchange Board of India (SEBI), issued norms for categorising schemes in 2017. Under these guidelines, asset management companies (AMCs) or fund houses could launch only one fund per category. However, there was no cap for index, thematic, and sectoral fund scheme launches.

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