Do Thematic Mutual Funds Really Add Value to Your Investment Portfolio and how

 Mutual funds come in different varieties and thematic funds are one such variety of mutual funds. Thematic funds are equity-oriented schemes which invest in the stocks of companies reflecting a common theme. For instance, if the theme is finance, thematic mutual funds would invest in stocks of banks, NBFCs, insurance companies and other companies which fall under the purview of finance. Similarly, for infrastructure themed mutual funds, the fund manager would pick stocks of companies related to the infrastructure industry like cement, construction, power, steel, etc. 

Thematic v/s sectoral funds

Thematic funds are more diverse compared to sectoral mutual funds. Sectoral funds invest in a particular sector like banking, insurance, power, etc. Thematic funds, on the other hand, reflect a particular theme and combine different sectors under the same theme. So, while sectoral funds have concentrated portfolios, thematic mutual funds have diversified ones.

Are thematic funds valuable to your portfolio?

To answer this question you need to have a look at the benefits offered by the top thematic mutual funds in India. Here are such benefits –

• Diversification 

The first benefit which thematic funds offer is the benefit of diversification. By investing in a thematic fund you can get exposure to stocks of companies engaged in different sectors. The companies might also have different market capitalizations allowing you to invest in multi-cap stocks. Thus, for diversifying your portfolio, you can invest in top thematic mutual funds in India.

• Good returns

Selection of the best thematic mutual funds online is the key to getting good returns on your investments. If you choose the right theme, you can get such attractive returns that even outperform the market. So, before investing in the best thematic mutual funds online, monitor the market sentiments across different themes. For instance, infrastructure boomed when the Government introduced the Smart City concept. In recent times, housing could be a good theme as there is an increasing demand for affordable housing. So, monitor potential themes and then choose the best thematic mutual funds online so that you can generate exceptional returns on your investments.

• Low tax rates

Since thematic mutual funds are equity-oriented schemes, you can get the benefit of equity taxation. Short term capital gains, if you redeem your funds within 12 months, would be taxed @15%. Long term capital gains, on the other hand, would be tax-free up to Rs.1 lakh and the excess would be taxed @10%. The tax rates are low allowing you maximum returns.

So, thematic mutual funds do add value to your portfolio and you can consider them for their returns and diversification. However, you should be careful about picking the right theme. Some of the top thematic mutual funds in India are as follows –

Name of the fund	1-year return*	3-year returns*	5-year returns*
SBI Magnum COMMA Fund	27.96%	5.94%	17.31%
ICICI Prudential FMCG Fund	10.67%	8.3%	12.62%
Franklin India Opportunities Fund	24.95%	6.85%	11.78%
Nippon India Quant Fund	16.82%	6.55%	10.61%
SBI Magnum Equity ESG Fund	12.92%	10.37%	12.63%

(Source: https://www.etmoney.com/mutual-funds/equity/thematic/44)
(*Returns as on 11th December 2020) 

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