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Thematic funds are a good option for 'Investing in the future for the future' and investors should ideally make a satellite allocation in these schemes, said Umeshkumar Daila, Head-ETF Sales, Mirae Asset Investment Managers (India) Pvt. Limited in an interview with Cafemutual.
"If an investor follows a core and satellite approach then the satellite part can be allocated to thematic funds. The core part can comprise broad-based indices like Nifty50 and Sensex," he said.
Thematic or sectoral?
Thematic and sectoral funds have different investment strategies. While thematic funds intend to capitalise on a rising trend by investing in all the top companies across the ecosystem, sectoral funds only invest in a particular type of companies.
"Let's take the example of electric vehicles. A thematic fund will invest in the entire production chain starting from mining companies to auto component producers to battery makers. On the other hand, a sectoral fund will invest only in original equipment manufacturers or auto ancillaries," he explained.
As per Daila, thematic may be a better option as they cover a bigger part of the ecosystem and hence carry lower concentration risk.
Which themes should investors look at?
Investors may consider investing in mega emerging themes like artificial intelligence, electric vehicle, clean energy, cloud computing and ESG, as per Daila.
"Investment in these themes is only possible through international funds and hence the allocation also helps diversify the portfolio geographically," he said.
Daila advised investors to take the passive route for investing in thematic funds as they come with advantages like lower cost and transparent stock selection methodology.
A lot depends on conviction
In the end, investing in a thematic fund depends a lot on the conviction of investors and MFDs on a certain theme. "The allocation and fund selection should be based on investment objective and the conviction of MFDs and investors on a particular theme," he said.
