In the growing world of investments, sectoral and thematic funds offer a unique opportunity to capitalize on specific market trends and industries poised for growth. In this article, we’ll explore the top 7 sectoral and thematic funds that are gaining momentum. Whether you’re a seasoned investor or just starting to explore these specialized investment options, this guide will help you make informed decisions. These insights will enable you to diversify your portfolio and position yourself for long-term success.
Let’s dive into the top picks that are set to outperform in the current market climate.
Table of Contents
What are Sectoral/Thematic Funds?
Sectoral and thematic funds are specialized types of mutual funds that focus on specific sectors or themes within the economy. In India, these funds have gained significant popularity among investors, particularly in recent years, due to their potential for higher returns compared to more diversified investment options.
Understanding Sectoral Funds
Sectoral funds are mutual funds that invest a minimum of 80% of their assets in companies belonging to a particular sector, such as banking, healthcare, or technology. The primary goal of these funds is to capitalize on the performance of specific industries that are expected to do well based on economic trends or market conditions.
For example, a banking sectoral fund would primarily invest in stocks of banks and financial institutions. While these funds can yield substantial returns during periods of sector growth, they also carry higher risks due to their concentrated nature. If the targeted sector faces downturns, the fund’s performance can significantly suffer.
As per reports, in 2024, sectoral funds attracted record inflows of ₹1.40 lakh crore, reflecting a shift in investor psychology towards riskier investments in pursuit of higher returns. This trend is attributed to favorable government policies and economic recovery phases that bolster certain sectors like healthcare and infrastructure. However, investors should be cautious as the performance of these funds can be volatile; they may excel in one year and underperform in another depending on market conditions.
Exploring Thematic Funds
Thematic funds differ from sectoral funds in that they invest across multiple sectors but are united by a common theme or trend. For example, a thematic fund focused on renewable energy might include stocks from various sectors such as solar power, electric vehicles, and energy storage solutions. This broader approach allows for greater diversification within the fund while still targeting specific growth trends.
In India, thematic funds have also seen considerable interest from investors seeking to capitalize on emerging trends like digital innovation or clean energy. Thematic investing allows fund managers to select stocks based on long-term growth potential rather than being confined to a single industry. As a result, these funds can provide exposure to various sectors while still aligning with overarching economic themes.
Investment Considerations
Both sectoral and thematic funds are suited for investors who possess a higher risk appetite and seek tactical plays based on their market views. They are generally recommended for seasoned investors who already have a well-diversified core portfolio and are looking to enhance returns through focused investments. Newer investors may find these funds challenging due to their volatility and the need for careful timing regarding entry and exit points.
Investors should also consider the costs associated with these funds, as they can be higher than those for diversified mutual funds. Additionally, while past performance can indicate potential future returns, it is essential to conduct thorough research and understand the specific risks involved with each fund type before investing.
While these funds offer opportunities for significant returns by focusing on specific sectors or themes, they come with increased risks due to their concentrated nature. As such, they are best suited for investors who are knowledgeable about market dynamics, sector rotation, and willing to engage with the inherent volatility associated with these specialized investment vehicles.
1. Invesco India Infrastructure Fund
India is a growing country, and as an investor, you can invest in India’s growth story through infrastructure mutual funds. According to reports, India’s infrastructure development is poised for a transformative phase leading up to 2047, coinciding with the centenary of its independence. Invesco India Infrastructure Fund is one of the best funds in the infrastructure category, investing in top companies involved in the development of the country’s infrastructure.
| Duration | CAGR | Absolute Returns |
|---|---|---|
| 1 year | 35.20% | 35.31% |
| 2 years | 44.09% | 108.23% |
| 3 years | 29.27% | 116.33% |
| 5 years | 31.85% | 299.08% |
| 10 years | 18.91% | 466.13% |
| Since inception | 21.21% | 906.46% |
2. ICICI Prudential Pharma Healthcare And Diagnostics (P.H.D) Fund
Good health is important to all of us. The healthcare and pharmaceutical industry plays a crucial role in this. Nowadays, technology is rapidly accelerating the development of these sectors. Even though these funds are sectoral/thematic, they are not as volatile as other sectors, such as defence. The ICICI Prudential Pharma Healthcare and Diagnostics (P.H.D) Fund is one of the best funds in the pharma and healthcare industry.
| Duration | CAGR | Absolute Returns |
|---|---|---|
| 1 year | 49.04% | 49.20% |
| 2 years | 45.94% | 113.66% |
| 3 years | 25.38% | 97.35% |
| 5 years | 32.37% | 306.98% |
| Since inception | 25.34% | 331.80% |
3. Aditya Birla Sun Life Transportation and Logistics Fund
With EV mutual funds, investors can ride the growth of the Indian electric vehicle industry. The Indian EV revolution has just started, and the future growth is expected to be exponential as the government supports green energy in the country. With transportation and logistics funds, you can invest in India’s biggest EV manufacturing companies. Aditya Birla Sun Life Transportation and Logistics Fund is one of the best mutual funds in the sector.
| Duration | CAGR | Absolute Returns |
|---|---|---|
| 1 year | 26.92% | 27.01% |
| Since inception | 34.29% | 38.92% |
4. Franklin India Technology Fund
Technology mutual funds invest primarily in companies from the technology sector, including:
- Software development
- Hardware manufacturing
- Artificial Intelligence (AI)
- Cloud computing
- E-commerce
- Fintech
- Semiconductors
These funds aim to benefit from the rapid growth and innovation in the tech industry, which has consistently outpaced many other sectors globally.
Technology mutual funds play a critical role in driving advancements in Artificial Intelligence (AI). Franklin India Technology Fund is a best fund in the sector holding top Ai-Tech companies such as Infosys, TCS, HCL Tech, Tech Mahindra.
| Duration | CAGR | Absolute Returns |
|---|---|---|
| 1 year | 29.48% | 29.76% |
| 2 years | 40.67% | 98.25% |
| 3 years | 15.86% | 55.59% |
| 5 years | 28.10% | 245.41% |
| 10 years | 18.34% | 439.59% |
| Since inception | 20.90% | 876.13% |
5. ICICI Prudential Manufacturing Fund
One of the booming sectors is India’s manufacturing sector. Over the last few years, AMCs started launching their manufacturing funds that invest in the top companies involved in manufacturing.
Make in India is a flagship program launched by the Government of India in September 2014, with the primary goal of transforming India into a global manufacturing hub. As the government focuses on manufacturing, we investors have the opportunity to invest in the best manufacturing mutual fund to create long-term wealth.
The ICICI Prudential Manufacturing Fund is a high-rated fund in the manufacturing theme.
| Duration | CAGR | Absolute Returns |
|---|---|---|
| 1 year | 22.95% | 23.02% |
| 2 years | 35.25% | 83.38% |
| 3 years | 25.68% | 98.76% |
| 5 years | 27.28% | 234.47% |
| Since inception | 22.45% | 253.20% |
6. Franklin India Opportunities Fund
The Franklin India Opportunities Fund aims to generate capital appreciation by investing in opportunities arising from special situations. These include:
- Corporate Restructuring: Companies undergoing mergers, acquisitions, or other structural changes.
- Government Policy and Regulatory Changes: Businesses that stand to benefit from new regulations, policies, or reforms.
- Temporary Unique Challenges: Firms facing short-term setbacks with strong recovery potential.
- Other Special Instances: Situations that create unique opportunities for growth and value creation.
This focus allows the fund to identify and capitalize on high-potential opportunities often overlooked in conventional investing.
| Duration | CAGR | Absolute Returns |
|---|---|---|
| 1 year | 39.15% | 39.27% |
| 2 years | 46.93% | 116.56% |
| 3 years | 28.80% | 113.97% |
| 5 years | 29.05% | 258.43% |
| 10 years | 17.68% | 409.87% |
| Since inception | 19.22% | 725.51% |
7. Invesco India PSU Equity Fund
Invesco India PSU Equity Fund is an open-ended equity scheme that focuses on investing in companies where the Central or State Government holds a majority stake. These companies often play a pivotal role in India’s economic development and may benefit from government policies and initiatives. By focusing on PSUs, the fund seeks to capitalize on the potential value and growth prospects inherent in these enterprises.
| Duration | CAGR | Absolute Returns |
|---|---|---|
| 1 year | 26.56% | 26.64% |
| 2 years | 41.15% | 99.80% |
| 3 years | 34.59% | 144.21% |
| 5 years | 28.05% | 244.70% |
| 10 years | 17.83% | 416.54% |
| Since inception | 17.33% | 581.44% |
FAQs
Which sectoral mutual fund is best now?
As India is growing rapidly, the Infrastructure sectoral mutual funds are best to invest now.
Which thematic fund is best in 2025?
Aditya Birla Sun Life Transportation and Logistics Fund is a best thematic fund in 2025 as the electric vehicle sector has the great future potential.
What is the difference between thematic funds and sectoral funds?
Thematic funds invest in a broader theme that may encompass multiple sectors or industries, such as technology, ESG (Environmental, Social, and Governance), or infrastructure, while sectoral funds focus on a specific sector like banking, healthcare, or IT. This makes thematic funds more diversified compared to sectoral funds, which are concentrated in one industry.
Is it safe to invest in sectoral mutual funds?
Sectoral mutual funds are not considered entirely safe as they are highly concentrated in a single sector, making them more vulnerable to industry-specific risks. Their performance depends on the health of the chosen sector, so they are better suited for investors with a high-risk tolerance and strong knowledge of the sector’s potential.
What are the risks of thematic funds?
Thematic funds carry risks such as limited diversification, as they focus on specific themes, and potential underperformance if the theme does not play out as expected. Additionally, they are sensitive to market cycles and can be impacted by macroeconomic or regulatory changes related to the chosen theme.
Is it good to invest in thematic mutual funds?
Investing in thematic mutual funds can be a good choice for experienced investors with a high-risk appetite and a strong conviction in the chosen theme. However, they may not be suitable for conservative investors or those seeking stable returns, as their performance can be volatile and depends heavily on the success of the theme.
What are the benefits of sector funds?
Sector funds offer the opportunity to capitalize on the growth of a specific industry, providing potentially higher returns when the sector performs well. They are ideal for investors who have a deep understanding of the sector and want to make concentrated bets to maximize returns.
What are the disadvantages of sectoral funds?
The primary disadvantage of sectoral funds is their high risk due to lack of diversification, as they focus solely on one sector. If the chosen sector underperforms, the fund’s returns can suffer significantly. Additionally, these funds require active monitoring and are not suitable for passive or risk-averse investors.
What is an example of a sector mutual fund?
ICICI Prudential Pharma Healthcare And Diagnostics (P.H.D) Fund is the best example of a sector mutual fund.
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