Top 5 Thematic Funds to explore

If our portfolio has stocks of Reliance, HDFC, Wipro, Tata etc., we are basically betting on Ambani, Aditya Puri (retired, but still), Azim Premji, and Murthy, respectively. Our risk is evenly distributed and you can very easily guess why. All of these companies operate in different sectors and are mostly, not influenced by one another.

But what if you follow a theme while investing? Meaning, you have faith in the agriculture sector so you want to put your money in related industries, like automobiles, fertilizers, chemicals, etc. You could do that on your own, OR, there are funds where you do not have to study each company separately and invest in them. All of it would be automated.

There are people who actively manage such funds. These funds are called Thematic funds. Today, we shall talk about what these funds are and how they could be super easy and fun to invest in!

Let us start right away then!

What are Thematic Funds?

There are different themes like housing, tourism, agriculture, infrastructure, etc. These funds are equity schemes and the themes are predetermined. The decisions and strategies are governed by scope of increase in that specific theme. Suppose you come across a Housing Thematic Fund. So, this theme will be investing in companies related to manufacturing of cement, paint, housing finance companies, steel companies, plywood companies etc. You get the picture, right?

Although these companies are of different sectors, they are tied in with one theme.

Now, you might wonder that there are many cement companies and so are paint companies and so are steel and plywood. One can only invest in so many companies, no? The experts who manage these funds will analyse all companies in the housing thematic fund and choose the best ones with promising future.

Top-down Investment Approach

Thematic investing uses the top-down investment approach. While performing the fundamental analysis of a company, this is one of the most common strategies used to research stocks.

In the top down investment approach, the investor first looks at the macro picture of the economy. Once the economy seems to have enough scope, the market in that economy is analysed and particular sectors that have the potential to outperform. And then, the investor works to investigate about the individual stocks.

So if we take the example from before, for investment in housing thematic funds, first, analysis of Indian economy will be done first. Then housing theme will be analysed, and then the sectors that come under this. Finally, the companies present in these sectors will be analysed.

Benefits of investing in Thematic Funds

  • Offers diversification- In sectoral funds, investors are confined by less or no diversification opportunities as the portfolio contains stocks of one sector only. If the whole sector is not performing well, your portfolio might see negative returns. This however, is not the case for thematic funds that offers diversification that is distributed across sectors, and not just a particular one.

So suppose you invested in a manufacturing theme fund, and the steel industry is not performing well, the other companies that are in your portfolio of different sectors will guard your portfolio from taking a plunge.

  • High returns- If you can just identify the right theme that might go way up in the future, and then invest in it, you are going to get so loaded! How? Suppose, our Finance Minister in her budget announcement said that they will be spending a considerable sum to develop the infrastructure. You did some math before the announcement and invested in the infra thematic fund. And as always, the budget announcement shows the acceptance of the general public and your stocks jump up.

It is not as easy as it sounds though. It requires a lot of monitoring to find that right theme and you will have to be updated of all the current news related to that theme.

  • Know the trend- Some themes are very obvious and it is inevitable that they are going to be the future. It is wise to analyse them in advance and take the advantage of early investment. Some of these themes are- Internet of things (IoT), robotics, EVs, renewable energy etc.
  • Long term investments- Thematic funds invest in consumer-facing industries, which mean they usually take time to provide returns. So, they are better to hold for medium to long term.

Top 5 best performing Thematic Funds

As of Feb 26, 2022, these funds are the best performing thematic funds in the Indian market.

  • ICICI Prudential Commodities Fund Direct

This fund has doubled the money invested in it every two months. Most of the money of this fund is invested in Metals & Mining, Construction, Chemicals, Energy, Consumer Staples sectors.

Returns of last 1 year-  46.93%

Average annual returns- 45.98%

  • Tata Ethical Direct Plan-Growth

The funds of this thematic fund is invested in Technology, Chemicals, Consumer Staples, Capital Goods, Healthcare sectors.

Returns of last 1 year-  28.90%

Average annual returns- 16.35%

  • SBI Magnum COMMA Fund Direct-Growth

The stocks of Metals & Mining, Chemicals, Energy, Construction, Consumer Staples sectors are in the list of this thematic fund.

Returns of last 1 year-  34.62%

Average annual returns-  14.44%

  • Sundaram Services Fund Direct – Growth

Financial, Services, Technology, Energy, Communication sectors are where the funds of this thematic fund are invested in.

Returns of last 1 year-  27.36%

Average annual returns- 23.06%

  • ICICI Prudential Exports and Services Fund Direct-Growth

Majority of the funds are invested in Healthcare, Financial, Communication, Technology, Insurance sectors.

Returns of last 1 year-  23.57%

Average annual returns- 18.95%

Certified Smart

Mutual Funds are a safe entry into the equity market. Mutual Funds provide returns that rival direct investments into shares of companies, but they are relatively more secure. This additional security is afforded by the knowledge and experience possessed by the manager of these funds.

But just because a fund manager exists and runs a Mutual Fund for you, this does not mean you blindly invest in any and all of these instruments. Only an educated investor is a safe investor. Which is why we have brought to you the Complete guide on Mutual funds.

The course will help you find the best way to start investing in mutual funds, explain how Mutual Funds work and more. So head on over and get Questing.


While the USA markets are well-endowed for passive thematic funds, Indian markets are still new to the game. The population of India is roughly 134 crore and out of it, only a number close to 4% of it invest in markets. Most of them suffer losses because they are unaware and uneducated to use the right tools to their advantage.

A thematic fund could be a good choice for those people who wish to play safe. Let the experts practice their expertise in the areas they have expertise in.