Sectoral/Thematic

• Sectoral Funds invest exclusively in a single industry or sector, such as banking, pharmaceuticals, IT, infrastructure, or energy.
• Thematic Funds invest in a broad economic or structural theme such as ESG, digital India, rural consumption, or electric mobility. They may span across sectors but are united by a single idea or objective.

These funds are not meant for core portfolio allocations but rather as satellite investments that allow investors to bet on a particular growth story or economic shift.

• Focused Strategy: The investment is focused either on a single sector or across multiple industries, driven by a common theme. This offers potential for higher returns if the targeted area performs well.
• High Risk and High Reward: Due to limited diversification, these funds tend to be volatile. Returns are highly cyclical and depend on the economic performance of the selected theme or sector.
• Cyclical Nature: Performance depends on the underlying sector's economic cycle. For example, infrastructure funds may perform well during government-led capital expenditure cycles, while IT funds thrive in global tech trends.
• Tactical Allocation: These funds are better suited for experienced investors looking for tactical exposure to market trends.
• Potential for Outperformance: If the chosen sector or theme outperforms the broader market, these funds can deliver significant alpha compared to diversified equity funds.

The Indian economy is expected to undergo a transformation in its structure, driven by the government's initiatives, increased digital usage, and capital expenditures directed towards sustainable projects. Such positive changes have opened up sector-specific investment opportunities:

• The banking sector is getting a boost from credit growth and better asset quality
• The IT sector is going through changes with AI, cloud, and automation
• Infrastructure is receiving a boost from the government's ₹10 lakh crore capex plan
• Pharma and healthcare continue to grow due to global demand and export opportunities
• EVs, renewable energy, and ESG investing are gaining momentum due to climate commitments and clean energy adoption

Investors using sectoral or thematic funds are looking to participate directly in these focused trends.

• Opportunity to earn high returns if the selected sector or theme performs strongly
• Helps diversify a portfolio with exposure to specific economic trends
• Can be used to take tactical positions based on macroeconomic or policy developments
• Suitable for medium- to long-term investors who understand sector cycles

• High concentration risk — poor sector performance can lead to significant losses.
• These funds are not suitable for short-term investing or conservative investors.
• Entry timing is crucial; entering at the peak of a cycle can lead to underperformance.
• Requires continuous monitoring and sector knowledge

Sectoral and thematic funds have seen mixed performance across the last five years:

• ICICI Prudential Technology Fund: ~26% CAGR (boosted by global tech rally)
• Nippon India Pharma Fund: ~20% CAGR (supported by export growth and R&D investment)
• SBI Banking and Financial Services Fund: ~18% CAGR (post-NPA recovery and credit growth)
• Aditya Birla Sun Life Digital India Fund: ~23% CAGR (on the back of AI, fintech, and e-commerce)

In 2022 and early 2023, these funds saw temporary drawdowns due to global inflation and interest rate hikes. However, the recovery in 2024–2025 has been strong in growth-oriented sectors, such as technology and green energy.

Sectoral and thematic funds are best suited for:

• Investors with a moderate to high risk appetite
• Those who understand sectoral cycles and macroeconomic trends
• Investors looking to enhance returns through tactical allocation
• Ideal for long-term investors with an investment horizon of 5–7 years
• Individuals looking to diversify their equity portfolio beyond standard liquid or flexi-cap funds

Taxation on sectoral/thematic mutual funds is the same as any equity-oriented fund:

• Short-Term Capital Gains (STCG): 15% if held for less than one year
• Long-Term Capital Gains (LTCG): 10% on gains above ₹1 lakh if held for more than one year
• Dividends: Taxed as per the investor's income slab. TDS applies if the dividend exceeds ₹5,000 per year.