All you need to know about thematic funds!

In the world of mutual funds, there are several thematic funds that are unique or distinct, meaning they are launched by a specific fund house. Very few people are aware of these funds. It is essential for you to know about these funds because you wouldn’t want to be in a position where you might mistake an ordinary stone for a diamond.

In the equity thematic funds category, there are many funds, such as ESG funds, MNC funds, PSU thematic funds, dividend yield funds, but some funds stand out as truly unique.

For example, Taurus Ethical Fund and Tata Ethical Fund exclusively invest in shares or assets that comply with Sharia, aiming to provide good returns over the medium to long term. They use benchmarks like S&P BSE 500 Shariah Index and Nifty 500 Shariah TRI.

Sharia-compliant mutual funds invest only in businesses that are considered ethical according to Islamic principles, although people of any faith can invest in them.

Similarly, Edelweiss recently launched an IPO fund. This is an investment theme where they invest in recently listed companies or companies going public. This fund specifically targets small and mid-cap companies from the new era to benefit from their potential growth.

Another fund is Axis Special Situations Fund, which invests in companies whose share prices may not be performing well due to certain specific circumstances. These circumstances could include regulatory changes, management restructuring, or temporary changes in the business environment.

Another unique fund is SBI Equity Minimum Variance Fund. This fund invests in a diversified range of companies from the Nifty 50 Index and ensures that the fund’s performance experiences minimal fluctuations.

HDFC Defence Fund is a unique fund that focuses on the defence sector, aiming to increase capital over the long term.

Similarly, Kotak Pioneer Fund invests in companies that employ new and innovative methods in production, technology, distribution, and more.

SBI Magnum Comma Fund includes companies related to commodities and commodity business in its portfolio.

To invest in a thematic fund, 80% of your assets need to be invested in shares that align with the chosen theme. Although they are limited to a specific theme, when compared to sector-specific funds, thematic funds tend to be more diversified…

To achieve good growth in capital over the long term, fund managers search for opportunities in all kinds of market capitalisation shares. Thematic funds fall under the equity mutual funds category and, therefore, they are taxed like tax equity funds.

If you redeem fund units within one year, you are subject to a 15% tax on the gains. After one year, you need to pay a long-term capital gains tax of 10% on gains exceeding one lakh rupees in a financial year.

When it comes to returns, according to Value Research data until October 6, thematic mutual funds have provided an average return of 18.41% over one year, 24.94% over two years, and 15.93% over three years.

For specific funds, Edelweiss Recently Listed IPO Fund has given returns of 17.7% over one year and 24.2% over three years. HDFC Housing Opportunity Fund has provided returns of 28.3% over one year and 29.5% over three years.

Less popular thematic funds come with higher risk and volatility. This is why financial advisors often advise staying away from them because these funds don’t have lot of peers. Comparing the performance of these funds is also challenging.

Even experienced and risk-taking investors find it challenging to assess the performance of these funds due to their unique or specific themes. Predicting the future performance of such funds is also difficult.

In popular thematic funds, even experienced investors are advised to allocate only 10% of their portfolio. However, if an investor is keen on a specific fund, like Sarvesh, they should seek advice from a financial advisor and fully understand the potential gains and losses.