Mutual funds are lining up new fund offerings that focus on specific themes or a particular sector
Thematic funds, which invest only in specific segments or themes, saw strong investor flows in October. This despite most equity fund categories seeing net outflows for the month.
The two thematic funds launched recently – Aditya Birla Sun Life Special Opportunities Fund (BSLSOF) and ICICI Prudential ESG Fund (IPEF) – collected around Rs 1,800 crore between them, according to data from industry body Association of Mutual Funds in India (AMFI).
The new fund offer (NFO) of BSLSOF collected Rs 409 crore, according to the fund house. Meanwhile, IPEF collected Rs 1,415 crore.
“Themes such as ESG (environmental, social and governance) are gaining popularity globally. With markets at new highs, the initial tendency of investors is to book profits. Or, they look for NFOs with a particular theme, rather than regular diversified equity schemes,” says Dhruv Mehta, chairman of Sapient Wealth Advisors and Brokers.
The ESG criteria are used for finding companies that are highly ethical in their operations.
On special opportunities funds, Mehta says investors need to evaluate what kind of special opportunities the fund manager is looking for. “For example, one of the opportunities that the fund manager could be looking for is companies that are going to benefit from the government’s focus on Atmanirbhar,” he points out.
The thematic fund category can see more NFOs coming over the next few months. Axis Mutual Fund (MF) has filed scheme documents for approval from the Securities and Exchange Board of India (SEBI), for a consumption-oriented exchange traded fund. The fund house has also filed scheme documents for a technology ETF.
How much do I invest in a thematic fund?
While a thematic fund can add a new investment strategy in your portfolio, you must make sure that the fund does not closely resemble the portfolio of your existing schemes.
Financial advisors say having a good look at the underlying portfolios of your existing schemes, is a good place to start from.
Also, you must keep your investment to any thematic fund at around five per cent of your equity allocation.
“Investors should maintain a core portfolio and create a satellite portfolio, if they see any tactical investment opportunities. They should have their own approach if they want to look at certain sectors such as pharma, where they may see tactical investment opportunities,” says Mahesh Mirpuri, founder, Invest Mutual (MF distributor).
However, keep in mind that sectoral funds can go through phases of volatility or underperformance.
Mirpuri says that when it comes to emerging themes such as ESG, it is important to study how portfolios of such funds differ from regular funds and whether it would add value to the overall portfolio in terms of returns.
“There can possibly be a case of re-rating of ESG investments, if institutional investors start to pour money into such themes. However, we need to wait and watch to see how the theme does for investors,” he says.