sectoral and thematic funds: Thematic funds catch the eye of investors, draw Rs 1.22 lakh crore in FY24

Mumbai: The popularity of mutual fund schemes betting on specific sectors and economic themes has shot through the roof in the past year as higher returns and aggressive push by asset managers have prompted investors to pump money into these schemes.

Assets under management (AUM) of this equity category in FY24 soared by ₹1.22 lakh crore to ₹2.93 lakh crore from ₹1.7 lakh crore a year ago – the highest growth in assets under management (AUM) collected by any equity category in this period. The category includes infrastructure, technology, pharma, business cycle, and banking schemes among others.

Wealth managers said a lot of the money accumulated by these schemes are on account of fund launches. As regulations prevent fund houses from operating more than one scheme in a category, the industry has found a way around this rule by launching schemes around various themes. In the past year, fund houses have launched thematic funds around themes like manufacturing, business cycle and innovation funds.

“Because fund houses already have a scheme in the diversified fund category and cannot launch another there, they are moving to sectoral and thematic space, where there are no such restrictions,” says Viral Bhatt, founder, Money Mantra.

The number of investor folios of sectoral and thematic funds has surged 38% in the past year to 1.82 crore from 1.32 crore a year back, while the number of schemes in this category rose to 160 from 126 in the same period.

High returns from some thematic funds have been a key trigger for heightened investor interest in them. For instance, the CPSE ETF has returned 108% in the last year, while PSU equity funds have returned between 85-98%. In comparison, the broad based Nifty 50 returned 26.25%Some of these themes are structured to invest in a broad-based manner, at times assuming the characteristics of diversified equity funds betting on a theme in vogue. “Themes like business cycles are broad-based and give the fund manager greater flexibility. Some of these funds are managed by the CIO himself, which lends higher credibility, which attracts investors” says Vineet Nanda, founder, SIFT Capital.