PSU theme based gave the highest average return of around 25.56% in 2024 so far, followed by infrastructure funds which offered an average return of 18.14%. Energy and power based funds gave 16.03% average return. Pharma and healthcare funds gave 12.04% average return in the said period. The other thematic funds excluding PSU, MNC and international funds offered an average return of 11.12%
Are you thinking what is making sectoral and thematic funds deliver such stellar performance? What factors have contributed to this?
“India is the fastest-growing economy in the World and is poised to be the third-largest economy within the next five years. The backbone of any growing economy is the infrastructure and energy, and therefore it is but natural for these sectors to grow. India is the 3rd largest energy-consuming country in the World. The biggest priorities for the Government in infrastructure have been on Railways, national highways, roadways and airports, as it is evident in the outlay of funds in various budget sessions,” said Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance.
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He also adds, “There has been a significant increase in lifestyle diseases and there has been a huge demand for affordable and better solutions, and therefore the pharma sector has also emerged as the focus sector for India’s growth, and so also is the affiliated medical tourism that has been growing.”
Among PSU fund category, CPSE ETF gave the highest return of around 30.37% in 2024 so far. Nippon India Power & Infra Fund gave the highest return of 17.78% in the said period.
Quant Infrastructure Fund, an infrastructure fund, offered the highest return of 26.27% in the said period. SBI Healthcare Opportunities Fund offered the highest return of 14% in 2024 so far. In the thematic fund category, Quant Momentum Fund gave the highest return of 25.93% in 2024 so far.
Amazed by these double-digit returns by the schemes? Looking to invest in sectoral and thematic funds? What strategy and allocation follow?
“When investing in sector/thematic funds, timing is extremely critical. We not only need to time the entry but also timely exit from these sectors. Unlike the diversified funds, these are not buy-and-hold funds. When a particular sector is performing well and providing superior returns than other funds, it is a human tendency to get greedy and hold on to those funds even though it may be time to exit,” recommends Minocha.
“Personal finance is more about behavioural science and keeping a check on emotions, though it is believed to be more research and analytically driven. Before investing, we should also understand the objectives of these funds, as some of them may have the objective of investing only 65% of the stocks in that sector,” he further explains.
In the last one year period, PSU funds gave an average return of 90.64%. During the same time period, energy and power based funds gave an average return of 55.49%, Infrastructure funds gave 64.03%, Pharma and healthcare funds gave 52.33%.The other thematic funds gave an average return of 4.20% in the last one year.
These funds delivered similar performance in the last six month horizon as well like energy and power based funds gave an average return of 35.72%. Infrastructure fund gave an average return of 35.71% in the last six months.
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Are you wondering whether these funds will continue to offer such performance in the future?
“The performance of sector funds keeps rotating and it is very imperative that those with a very high risk appetite should only invest in sector funds. It is natural for anyone to invest based on past performance but that can be a recipe for disaster. Sector funds should be, at best, only the satellite component of the portfolio, not more than 5% to 8% of the total portfolio,” said Rajesh.
He also recommends, “I prefer taking time to research and selecting a good flexi cap or a multi-cap fund. We can let the fund manager of these funds take sectoral calls and invest in the stocks based on their research capabilities and timing for entry and exit from such sectoral stocks.”
We considered all regular and growth options. The returns for 2024 so far were calculated between January 1, 2024 and May 6, 2024.
Note, we excluded PSU, MNC and international funds from other thematic funds as these categories are separately taken in the ACE MF database.
Thematic or sector schemes invest most of their corpus in a particular sector, and the performance of schemes is based on performance of the sector. That is why thematic or sector funds are recommended only to investors with thorough knowledge about the sector.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
