Skip to main content

Thematic mutual funds

Thematic funds should be considered only if you have built up a sizeable portfolio and allocated your assets appropriately

WHO IS IT MEANT FOR?

Strictly speaking, if you’re a first-time investor, then a thematic fund may not be the right kind of product for you. For a first time investor, diversified equity funds should be the first step. Thematic funds are generally seen as more of a product for informed investors. An investor should look at investing in thematic funds only after one has built up a sizeable portfolio and has allocated one’s assets appropriately. What this means is that you should explore thematic funds only after you have an adequate exposure to both small cap and mid-cap stocks and have the capacity to bear a sizeable amount of risk. Even then experts recommend minimal exposure.

FALLOUTS

At any given time, there is generally one segment in which more interest is shown than others, which then becomes the flavour of the season. Investors immediately begin clamouring for it. However, the fallout of this is that some themes or flavours get taken to unwarranted heights and the effects are immediately on the price. The prices of stocks go skyrocketing in such a situation and much beyond their intrinsic value. Too much money begins chasing too few stocks and they immediately get overvalued.

RISKS AHEAD

Investors looking at putting their hard-earned money into thematic funds need to be aware that there is a sufficiently high level of risk associated with them. It is a classic case of putting all your eggs into one basket and by investing in concentrated segments, you are perhaps putting yourself in a precarious position.

However, mutual fund houses strategise as much as they can to reduce the level of risk involved. The method is simple and involves a small amount of diversification. For instance, when a mutual fund house comes out with a theme fund on infrastructure, it does not solely invest in the stocks of infrastructure companies but also puts money into stocks of allied sectors like steel. When a particular sector then takes a hit, the fund relies on these stocks to support it, if not bail them out of the situation.

DECISION-MAKING

The key to deciding whether or not to invest in a particular theme fund lies in asking yourself the crucial question of why that particular theme is enjoying the importance at the moment. Once you have a satisfactory answer, the next thing you need to ask is the prospects of that particular theme. Queries on that front are generally addressed by doing a thorough search and taking into account all stocks, private equity, earnings and possibilities of growth associated with that theme.

The performance of your theme also depends on the fund manager’s skill to identify the funds with growth potential. Only about 20 in every 100 themes are known to give positive results. Moreover, you cannot decide your theme based entirely on the positive results shown by the theme in other markets and need to check for its viability in your market.

One should not give undue importance to looking at the track record of that particular thematic fund. Given the vacillating nature of theme funds, investors should take a more holistic view and look at the track record of the fund house also by the performance of the other funds that come under its purview.

FUTURE PROSPECTS

Timing is crucial in terms of investing in thematic funds and experts recommend that investors need to give the thematic fund a period of three to five years to pan out and begin to perform well. As for the performance of thematic funds in India, experts say the early entrants into the industry, which invested a few years ago, have a definite advantage.

Looking ahead, experts have a few recommendations in terms of sectors or theme that could possibly yield good returns. Infrastructure is perhaps the top of the list, followed by financial services and the energy sector. Investors should look at putting their money in these sectors through a systematic investment plan over 5-10 years.

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

EPFO can pay 8.5% interest in 2009-10

THE Employees’ Provident Fund Organisation can comfortably offer 8.5% interest rate to its 4.41 crore depositors during 2009-10 and still record a surplus contrary to Rs 139-crore losses suffered by it for giving the same benefit during the current fiscal. The issue of return to the depositors would be discussed at a meeting of the ‘finance and investment committee’ (FIC) on Thursday, agenda for which lists that maintaining an 8.5% interest could still give the fund a surplus of Rs 6.4 crore on the investment made by the fund. If EPFO maintains the interest rate of 8.5% on PF deposits, there will be a surplus of Rs 6.4 crore at an estimated income of Rs 12,994 crore in 2009-10. In case the interest is raised to 8.75%, the fund would suffer a loss of Rs 366.77 crore and the deficit would be still higher at Rs 739.94 crore if the rate of interest is fixed at 9%. FIC gives recommendations on financial matters to the apex EPFO body Central Board of Trustees (CBT), which takes the final ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now