Here are four thematic mutual funds that have consistently outperformed the Nifty 100 Index and Nifty Large Midcap 250 index (dividends included) over every possible 1,2,3,4,5 year periods since inception. The SEBI categorization rules have clubbed fund that invests in a particular sector or particular theme in the same category “sectoral/thematic”. For the purpose of this post, we shall refer to them as thematic funds.
Before we begin, are you working with a fee-only financial planner from my list? If yes, can you please fill this feedback form? Please help if you are working with a fee-only financial advisor. We have already received 390 responses. I am hoping we can make it close to 500 before I present the results to the planners. I shall also share them here.
Who should invest in thematic mutual funds?
A thematic or sectoral fund is by construction more volatile than a diversified equity mutual fund (even small cap funds) so only those who have a clear plan and know what they are doing should opt for these. While in general, I do not recommend these, there are some ways
Building a Diversified Equity Portfolio with Sector Mutual Funds. Here your equity portfolio has only 3-4 thematic funds. The diversification is guaranteed and your focus it is the overall equity portfolio return and not individual thematic fund return. This will take a lot of conviction to carry out.
Use it as a satellite portfolio. Your core equity portfolio has, say two diversified funds (one large cap, one mid cap) and you wish to add a thematic fund as a satellite. Maybe 5%-20% exposure. Too small an exposure may not make a difference to your portfolio, but if it makes you happy go ahead. However, periodic rebalancing is crucial. That is, if the thematic fund falls, you shift some gains from your core equity folio. If your thematic fund gains, you shift some gains to your core equity folio.
Use it part of your core portfolio (A). Some funds (and this is a pretty short list) like MNC funds or ESG funds could be used as a replacement for a large cap or large and mid cap funds by well-informed investors. See for example: Can I invest in MNC Funds? Review: UTI MNC Fund vs ABSL MNC Fund
Use it part of your core portfolio (B) If you understand a sector or theme well (or have more information about it than the general public, maybe because you are a subject expert or access to those), but not interested in picking individual stocks (probably a better, less expensive option), can consider thematic/sectoral funds. However, the basics of portfolio management will still apply!
How were the four thematic mutual funds selected?
Using the Aug 2019 Equity Mutual Fund Performance Screener, we compare 78 thematic funds with Nifty LargeMidcap 250. We then ask, how many of these funds have beat the index at least 70% of every possible 3,4 and 5-year durations. The answer is 14 (just 18%). We shall refer to this as return outperformance.
🔥Secure your future with our Robo-advisory tool trusted by over 3,500 investors and advisors. From effortless retirement planning to funding your children’s biggest dreams, turn your financial goals into reality. 🔥
Then we ask, out of these 14 funds, how many tend to fall lower than the index when the index falls over 3,4,5 year periods. The answer is 6 (about half). We shall refer to this as risk outperformance.
Next, we look at the 1 and 2 year periods and filter out funds that have less than 60% risk and return outperformance. So two funds drop and we are left with four.
Disclaimer: Readers interested in the following funds are advised to read the individual fund scheme documents, understand the nature of the scheme and its risks. I do not hold any positions in any of these funds.
Franklin Build India Fund – Direct Growth
Aditya Birla Sun Life India Gennext Fund – Growth – Direct Plan
Mirae Asset Great Consumer Fund – Direct Plan Growth
SBI PSU Fund – DIRECT PLAN – GROWTH
The first is an infra fund. The next two are FMCG funds and the last is a PSU fund (surprised?!)
Four additional thematic funds that have beat Nifty 100 TRI
Now, the above analysis was repeated with Nifty 100 TRI and in addition to the above funds, the following four funds have also done well.
ICICI Prudential FMCG Fund – Direct Plan – Growth
Sundaram Rural and Consumption Fund – Direct Plan – Growth Option
Canara Robeco Consumer Trends Fund – Direct Plan – Growth
DSP Natural Resources and New Energy Fund – Direct Plan – Growth
Just to reiterate, Franklin Build India Fund, Aditya Birla Sun Life India Gennext Fund, Mirae Asset Great Consumer Fund, SBI PSU Fund have outperformed both Nifty LargeMidcap 250 TRI and Nifty 100 TRI as per the above-mentioned norms.
Finally, let me explain why the above benchmarks were chosen and not the individual sectoral benchmarks. As an analyst, sectoral benchmarks make sense. As an investor, I need to know if the additional risk I take in investing in a thematic fund is worth. Hence the decision to use a large cap index (Nifty 100 TRI) and 50% large cap + 50% mid cap index (Nifty large mid cap 250 TRI).
Use our Robo-advisory Tool to create a complete financial plan!More than 3,000 investors and advisors use this! Use the discount code robo25 for 20% off. Plan your retirement (early, normal, before, and after), plus non-recurring financial goals (such as child education) and recurring financial goals (such as holidays and appliance purchases). The tool helps anyone aged 18 to 80 plan for retirement, plus six non-recurring and four recurring financial goals, with a detailed cash flow summary.
Have a question? Subscribe to our newsletter using the form below.
Hit 'reply' to any email from us! We do not offer personalised investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Our flagship course!Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! More than 3,500 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market conditions! Watch the first lecture for free! One-time payment! No recurring fees! Lifelong access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.Increase your income by getting people to pay for your skills!More than 900 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner seeking more clients through online visibility, or a salaried individual looking for side or passive income, we will show you how to do it by showcasing your skills and building a community that trusts and pays you. (Watch the 1st lecture for free). One-time payment! No recurring fees! Lifelong access to videos!Our book for kids: “Chinchu Gets a Superpower!” is now available!Both the boy and girl versions of "Chinchu Gets a Superpower". Most investor problems stem from a lack of informed decision-making. We made bad decisions and money mistakes when we started earning, and we spent years undoing them. Why should our children go through the same pain? What is this book about? As parents, what if we had to groom one ability in our children that is key not only to money management and investing but to every aspect of life? My answer: Sound decision-making. So, in this book, we meet Chinchu, who is about to turn 10. The story follows what he wants for his birthday and how his parents plan it, while also teaching him key ideas about decision-making and money management. What readers say!Feedback from a young reader after reading Chinchu gets a Superpower!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.
Freefincal is a News Media organisation dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact Information: To get in touch, please use our contact form. (Sponsored posts or paid collaborations will not be entertained.)
Published by CNBC TV18, this book helps you ask the right questions and find the right answers. It also includes nine online calculators, so you can create custom solutions tailored to your lifestyle. Get it now.
Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want
This book is designed to help young earners get the basics right from the start! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth exploration of vacation planning, including how to find affordable flights, budget accommodations, and practical travel tips. It also examines the benefits of travelling slowly, both financially and psychologically, with links to relevant web pages and guidance at every step. Get the PDF for Rs 300 (instant download)
Create a complete financial plan with our Robo-advisor!
Trusted by 3500+ investors and advisors! Use code robo25 for a 20% discount!
