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Thematic Funds

Definition: The Thematic Funds are a kind of mutual funds that invests across the sectors related to the common theme. This means, if the fund is built on an infrastructure theme might invest equities in construction companies, cement companies, steel companies and the other companies that are related to the infrastructure sector.

Unlike sector funds, the thematic funds are more diversified as the investments are concentrated in several sectors and not in a single sector. Both the sector funds are volatile and riskier than the broad market as their performance is solely based on the performance of the sector or sectors in which they are investing. The objective of thematic funds is to offer the investors an opportunity to invest in the theme related sectors that have a strong growth potential due to the boom in the industry.

The following characteristics are common to the thematic funds:

  • Focus on stocks of different sectors, but are related to the common theme.
  • More volatile and riskier than the broad market, but relatively less risky than the sectoral funds.
  • Invested across the different sectors that are woven around the specific theme.

The thematic funds are opted by those investors who are not risk averse i.e. they are willing to take a risk. The investors invest in the thematic funds if they expect that a particular industry theme, e.g. agriculture, is likely to grow in the near future, and the related sectors have a strong growth potential than the broad market. Also, these funds are purchased to hedge against the other holdings in the portfolio.

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