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Thematic equity funds invest in stocks linked to a theme. These funds have a broader scope than sectoral funds, as they invest in stocks from various sectors that are linked to a particular theme. Energy thematic funds invest in energy-related stocks. As per the SEBI guidelines, a minimum of 80% of the funds will be invested in energy-linked stocks.
The objective of these funds is to generate maximum returns by investing in the stocks of energy-related companies.
We believe that concentration risk is high in any thematic funds and the impact of the market cycle can be severe in this category. Though these funds may have higher diversification compared to sectoral funds, this category is suitable for informed investors who are comfortable with high risks as the fund will invest in companies associated with the same theme. These funds are suitable for investors that are bullish on the companies benefiting from energy production and consumption in the country. So, you should have a solid understanding of the theme before you invest in such funds. If there is a change in government policy affecting the theme, then it will impact the fund returns. Also, entry and exit timings matter in these funds, so we can not define the ideal time horizon for any particular thematic fund. Some themes may play out rapidly and others will take time. You should not allocate more than 10% of your portfolio to any thematic funds.