Thematic & Sectoral Funds – High Risk, High Reward?

Sectoral and thematic funds offer focused exposure — but are they for you? Learn the risks, rewards, and when to consider these niche equity funds.

04/06/2025

Introduction

Want to bet on IT, Pharma, EVs, or Banking? That’s exactly what thematic and sectoral funds offer — focused plays on specific trends or industries. But with high return potential comes high risk. In this blog, we simplify what they are, who should invest, and the risk-reward dynamics.

SEBI Definitions 💡 Sectoral Funds

Invest 100% in a single sector like banking, FMCG, pharma, etc.

🌐 Thematic Funds

Invest based on a theme like ESG, Consumption, Digital India, etc.
Can span across multiple sectors under one theme

Real-Life Example: Sanjay vs. Anuja

Sanjay, a tech believer, invested in an IT Sectoral Fund in 2020. He saw 40% gains in 2021, but a 25% fall in 2022.
Anuja, a diversified investor, allocated 10% to a Thematic Fund on Digital India — earning 14% CAGR over 5 years with some volatility.

Lesson: Sectoral funds are like sprinting. Thematic funds are marathon runners — more stable, but still cyclical.

Key Considerations

If You…	Then...
Are bullish on one sector	Consider sectoral fund
Prefer broad, long-term trends	Consider thematic fund
Can stomach volatility	Allocate up to 10–15% of portfolio
Want core portfolio	Stick to diversified equity

📊 Use these funds as satellite positions, not core

🧠 Research thoroughly before investing
🔍 Keep a 5–7 year horizon for thematic bets

Summary Table: Thematic & Sectoral Funds

Fund Type	Avg Return (5-Yr CAGR)	Avg Risk	Avg Investor Behaviour
Sectoral Fund	12% – 16% (volatile)	Very High	Momentum chasing, panic exits common
Thematic Fund	11% – 13%	High	Opportunistic, partial portfolio share
Diversified Equity	10% – 12%	Medium	Core SIPs, disciplined investing

Dr. Satish Vadapalli
Research Analyst

Thematic & Sectoral Funds – High Risk, High Reward?

Introduction

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