Most of the thematic and sectoral funds launched in the last one year have fallen below the issue price of ₹10 raising serious concern among investors, amid the recent turbulence in the equity markets.
Of the 163 thematic funds launched, the net asset value of 57 funds was quoted below ₹10 as of October-end. Among the schemes of large funds that are trading below ₹10 include Motilal Oswal Nifty India Defence Index Fund, Aditya Birla SL Quant Fund, SBI Automotive Opportunities, ICICI Pru Energy Opportunities and SBI Innovative Opportunities.
Thematic mutual funds invest in stocks that are tied to a particularly theme. For instance, an infrastructure theme fund will invest in cement, power and steel, among other sectors. Since these funds invest in a particular theme without any diversification, they are categorised as high risk and its return depends on the specific sector performance. They also carry concentrated risk and hence are meant for investors with an aggressive risk profile.
With most of the active funds failing to beat their benchmark indices, mutual funds have taken the passive route to tap opportunities in thematic investment. These funds typically replicate the performance of an index and are managed passively by fund managers. They are typically more popular among investors because they are more cost-effective and easy to understand.
NSE Indices, the subsidiary of National Stock Exchange, launched five sectoral or thematic indices this year; just one such index was launched in 2023.
Over the recent market run-up, investors have thronged to high-risk funds based on prospects around continued growth in the domestic markets, coupled with a strong expectation for instant gratification.
Kavitha Narayan, Vice-President and Head Research and New Initiatives, Capricorne Mindframe, said investing in thematic fund NFOs comes with the added risk of being a late entrant into a sector that could have run-up. Huge demand coming in for certain sectors and themes has also led to a lot of asset management companies launching funds with the aim to consolidate additional assets under their umbrella, she said.
Investors should re-evaluate their portfolios and ascertain the long-term prospects of the sector they have invested in to take a call on their further action, said Narayan.
CA Jashan Arora, Wholetime Director and Promoter, Master Trust Group, said given the current market scenario, adding a thematic fund might offer some opportunities, but it comes with risks, especially when considering new NFOs.
While thematic funds, especially NFOs, can offer opportunities, they come with higher risk due to concentration, volatility and lack of performance history, he added.
