Thematic funds bear the brunt of market turbulence

Suresh P. Iyengar | | Updated on: Apr 20, 2022

Most thematic funds have delivered negative returns even though they appear promising in long term

Thematic schemes of mutual funds have taken a sharp hit in last six months with almost all the popular themes including banking, financial services, information technology and pharmaceuticals beaten down.

Mutual funds were launching thematic funds in line with the then sought after sectors to attract investors. In all, fund houses had launched 10 new thematic funds last fiscal and attracted good inflow from investors.

Banking and financial services funds have fallen between 12 per cent and 9.42 per cent in last six months, while the benchmark Bank Nifty had lost 6.91 per cent.

The IT and digital-focused funds dipped between 9 per cent and 4 per cent in last six months, while the pharma-based thematic funds slipped between 4 per cent and 0.02 per cent.

However, over last one-year, the Banking and Financial Services funds had given positive return of 17.12 per cent and it was a mixed performance for other category funds with the highest positive return of 46 per cent from ICICI Pru Commodities fund to negative return of 20 per cent from Franklin Templeton Asia Equity fund.

Rise in AUM

The asset under management of these funds have increased 48 per cent to Rs 1.49 lakh crore last month against ₹1.01-lakh crore both on account of mark-to-market gain a fresh inflows, according the Association of Mutual Funds in India (AMFI) data.

The thematic funds are for long-term investors looking for high-risk and high-return products and not suited for risk-averse first-time mutual fund investors, said V Gopichand, an individual mutual fund distributor.

After the historic bull run during the better half of last year, the broader equity market itself slipped into the clutches of bears. BSE Sensex plunged by whopping 2,844 points from a high of 59,307 last October to 56,463 in March due to spate of disturbing developments across the globe amid ragging inflation worries.

Skewed business

Thematic funds have attracted investments from score of new generation investors who entered the equity market with star in their eyes. The return from these schemes are directly co-related to the performance of the particular sector. In all there are 117 thematic funds which are mostly actively managed.

Abhinav Angirish, Founder & CEO, Investonline.in, said the underperformance of thematic funds can be attributed to the fact that the portfolio of these schemes are heavily skewed towards to a particular sector or theme.

Businesses are cyclical in nature and when things do not go the right way, thematic funds fall faster than their diversified peers, he added.

Like in many other categories, very few funds have managed to beat their respective benchmarks. Within a particular theme, fund managers usually invest in several sub-sectors to bring in a bit of diversification and tap the opportunity across the value chain in the sector, said a fund manager.

However, he added that the sub-sectors are more prone to economic turbulence largely due to their smaller scale of operations. This leads to underperformance of a scheme compared to its benchmark, he said.

Published on April 19, 2022
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