Sectoral and Thematic Funds Surge in Popularity, Offering High Returns Amidst Rising Investor Interest and Risks

The article highlights the rapid growth and increasing popularity of sectoral and thematic mutual funds in India. The Assets Under Management (AUM) for these funds have surged to ₹5,13,469 crore as of September 2025, marking a remarkable 222.8% increase in just three years. This surge is driven by strong investor interest, attracted by high returns from themes like PSU, infrastructure, defence, and auto. Fund houses are actively launching new plans, partly because SEBI regulations permit multiple launches in this category, unlike diversified funds. Over 50 new funds were added in the last financial year, bringing the total to over 211.

Impact The growing popularity of these funds indicates a shift in investor preference towards concentrated bets on specific sectors or trends. While this can lead to significant gains when a theme performs well, it also exposes investors to higher risks compared to diversified funds. The concentration means that adverse events affecting a specific sector can severely impact fund performance. This trend may lead to increased market volatility in specific sectors and necessitates a more informed investor base. Rating: 8/10

Difficult Terms: Sectoral Funds: Mutual funds that invest all their money in a single industry or sector, like technology, banking, or pharmaceuticals. Thematic Funds: Mutual funds that invest across various sectors but are linked by a common theme or trend, such as consumption, ESG (Environmental, Social, and Governance), or manufacturing. AUM (Assets Under Management): The total market value of all the investments a fund holds. SIP (Systematic Investment Plan): A method of investing a fixed amount of money in a mutual fund at regular intervals, like monthly. AMFI (Association of Mutual Funds in India): An organization that represents and promotes the Indian mutual fund industry. SEBI (Securities and Exchange Board of India): India's capital market regulator. CAGR (Compounded Annual Growth Rate): The average annual growth rate of an investment over a specified period longer than one year. Market Cycles: The recurring pattern of expansion and contraction in economic activity, which influences the performance of different market sectors.