Thematic mutual funds gaining popularity among investors; attracts Rs 14,000 crore in 5 months

Thematic mutual funds have been gaining traction among investors with the category attracting nearly Rs 14,000 crore in the past five months, signalling an increasing high-risk appetite among investors.

The category has been attracting regular inflows since June. Before that, the segment saw a net withdrawal of Rs 169 crore in May, the latest data from the Association of Mutual Funds in India (Amfi) showed.

Sectoral fund investing is for very high-risk appetite investors as the portfolio is concentrated in a particular sector. Only a well-informed investor should park funds in the sectoral funds. "With an increased risk appetite for equities and awareness of products and offerings, retail investors opt for higher-risk products like thematic or sectoral funds compared to other products, Gopal Kavalireddi, VP - Research, FYERS, said.

Going by the Amfi data, thematic funds witnessed an inflow of Rs 3,896 crore in October, which was the second-highest amount in the equity category after smallcap funds that attracted Rs 4,495 crore.

Further, the segment saw an inflow of Rs 3,147 crore in September, Rs 4,806 crore in August, Rs 1,429 crore in July and Rs 459 crore in June.

Within the sectoral funds, banking sectoral funds are quite popular with investors.

Banking sector fund allows investors to participate in India's growth story by betting on bank stocks.

Historically data shows that in the past ten years when BSE Sensex has gone up by 203 per cent BSE Bankex is up by 282 per cent indicating the long-term outperformance of the banking sector.

Over the past few quarters, banks have delivered higher growth in profits compared to several other sectors. Further, microfinance companies and Fintech firms are seen providing growth impetus to the overall banking sector which can be tapped via banking sectoral funds by the investors.

"An investor should know when to enter and when to exit while investing in a thematic fund," Tata Asset Management, Head of Institutional Clients Banking, Alternate Investments & Product Strategy, Anand Vardarajan said adding that Tata Banking and Financial Services Fund is a sectoral fund that takes exposure in Banks, NBFCs and MFIs. The fund also holds a private-sector general insurance company.

"We see the consumer lending space in India as a huge opportunity for the organized lenders (banks & NBFCs). Unlike in the past, the coming round of growth will likely be driven by multiple engines as banks/NBFCs have developed diverse product lines (including multiplicity of secured lending options)," Amey Sathe, Fund Manager, Tata Asset Management, said.

"Along with lending, we think non-lending spaces like life insurance, general insurance and asset management businesses are seeing business buoyancy and penetration levels remain low compared to other developed/developing countries."

Overall valuation of BFSI space is reasonable/attractive and that augurs well from investors' perspective. We believe that select BFSI companies will be able to leverage their expertise & established market positions to grow their retail loan books faster than the market expectations," he added.

Thematic, which is one of the 11 equity fund categories, has assets under management of Rs 2.18 lakh crore in October-end. Mutual Fund participation in India is increasing steadily and 6 per cent of the household savings is parked in the mutual funds by individuals, according to Indian Household Savings RBI Data 2023.