Why sector and thematic funds are not part of MC30?

Take the case of pharmaceutical funds. In 2015, they gave returns of 20 percent and topped the charts. But in 2016 and 2017, they performed badly and gave the worst performance among all sector and theme funds. Pharmaceutical companies found it challenging due to stricter rules in key markets such as the US. It was only last year after the COVID-19 pandemic broke out that pharmaceutical companies came into the limelight as healthcare took centre stage.

The infrastructure sector caught everyone’s attention in the year 2015, 2016 and 2017. But the global market crash of 2018 and subsequent delays in economic recoveries meant that the sector remained subdued all the way till the start of 2021, when countries around the world began to show signs of market recovery.

 Diversification is the key

The basic rule to invest in mutual funds is for the sake of diversification of risk. In diversified equity funds, the outperforming sector will offset the loss caused by the underperforming one and lead to deliver a balanced return over the period.

Though the sector and thematic funds deliver notable return over the long run, if they underperform when you require your money, you will be in trouble.

So, sector and thematic funds are suitable for those who have an understanding and in-depth knowledge of that particular sector or theme.

 Also see: The complete MC30 basket of mutual fund schemes

Here is the list of diversified equity funds that MC30 offers:

Largecap funds

Large-cap funds invest at least 80 percent of their portfolio in large-cap stocks as per SEBI’s classification norms. Given their major allocation to bluechip stocks, it tends to exhibits lower volatility compared to other equity funds. We have two funds offering under MC30:  Canara Rob Bluechip Equity Fund and Mirae Asset Large Cap Fund.

Midcap funds

As mandated by SEBI, midcap funds invest at least 65 percent of their assets in the companies ranked between 101 and 250 based on the full market capitalisation. These companies are either at their nascent or developing stage and are under researched. Although relatively volatile in the short run, mid-cap companies have the potential to deliver higher growth in the long term. We have four funds offering under MC30: Axis Midcap Fund, DSP Midcap Fund, Invesco India Midcap Fund and Kotak Emerging Equity Fund.

Flexicap funds

As the name suggests, flexicap funds have leeway to invest across market capitalisation based on the fund managers’ conviction. We have three funds under MC30: Kotak Flexicap fund, Parag Parikh Flexi Cap Fund and UTI Flexicap Fund.

Smallcap funds

As mandated by SEBI, smallcap funds endeavour to invest at least 65 percent of assets in stocks whose market capitalisation is below top 250 companies in terms of full market capitalisation. Small-cap companies are potential mid-caps of tomorrow and offer twin advantage of high growth prospects and relatively lower valuation. MC30 presents two funds: Axis Small-cap Fund and SBI Small-cap Fund.

ELSS

Equity Linked Savings Scheme (ELSS) offered by mutual funds provide the twin benefits of growth in capital and tax savings, albeit with a three-year lock-in. The amount of up to Rs 1.5 lakh invested in the ELSS is eligible for tax deduction under section 80C of the IT Act. MC30 presents two funds: Canara Robeco Equity Tax Saver and Kotak Tax Saver.

Focused funds

As mandated by SEBI, funds under focused category follow a concentrated approach of investing in a maximum of 30 stocks. MC30 presents two funds: Axis Focused 25 fund and SBI Focused fund.

Also read: Presenting, MC30's largest equity fund entrants