8 Key benefits of thematic investing in India

Thematic Investments: The Next Generation For Better Returns

The pandemic of 2020 has completely changed the outlook of everyone’s life. Stuck to the confines of their homes, many people have tried to find some solace in other activities to avoid boredom.

As the government from every country continues to grapple with the economic and health activities, a different scenario of the stock market has come out.

After the significant drop of 45% across major stock indices in the stock market, the market witnessed a speedy recovery after 3-4 months. All thanks to the retail investors who did an outstanding job by maintaining the liquidity in the stock market.

These things have put a major impact on global thematic funds. As per the research report of Morning star; the assets under management in thematic investment grew nearly three times from 75 billion dollars to around 195 billion dollars worldwide.

Let’s understand what is a thematic investment, how does it work and what are the benefits of investing in thematic investment:

What is Thematic Investment

Thematic investments are open-ended equity schemes that are directly linked to distinct yet predetermined investment themes. The themes are mostly linked to the major trends which are emerging in the world at large.

With thematic investment, investors park their money so that they can become a part of various investment themes which impact the world.

Thematic investment enables you to invest in long term trends or themes in an attempt to capitalize on major technological, societal and other trends that keep a huge impact on the world.

The Mindset of a Thematic Investor Pursuing Megatrends

While pursuing megatrends, the mindset of thematic investors roams around transport, technology, robotics, energy, fuel etc. Before investing in megatrends, a thematic investor asks himself the following questions: Concerning transport as a megatrend, should I only invest in auto stocks if the auto company has planned to build electric cars?

Similarly, if a thematic investor seeking a megatrend called the older population, the first thing he asks himself is: should I invest in pharma stocks as the senior citizen depends more on medication and pills for their overall wellbeing. What old fashioned companies will robots disrupt?

Asking such questions will help investors to move to a trend early and achieve bountiful benefits to earn good returns.

What are the Mega Trends Someone Looks at?

Here are the megatrends that investors might consider pursuing:

  1. Clean Energy
  2. Gig Economy
  3. Digital Economy
  4. Nutrition
  5. Agribusiness

How Do Thematic Funds Work?

All the mutual funds have underlying assets which bring them adequate stock trading returns. If we talk about large-cap funds, the underlying assets are stocks of renowned companies with a huge market capitalization.

Same things about thematic investments: thematic funds have a company’s stocks as underlying assets that are united by predetermined themes.

Let’s understand it with an example:

If a fund has an SG fund, it will invest in the companies that are based on environmental, social and corporate governance factors from different sectors such as technology and financial services.

This is what makes thematic investment different from other investment approaches which are based on value and growth, market cap, sectoral based (pharma, technology, infrastructure).

As per the SEBI guidelines, the minimum investment in equity and equity-related instruments of a particular theme shall be 80% of total assets.

What Sort of Cautions One Need to Take Before Investing in Thematic Investing:

While putting money in thematic investing, one needs to do a lot of stock market research on the companies you want to invest in and constantly monitor the themes that are working well in the world. The frequent changes in the trends will give you an idea of which companies will increase your ROI.

It is good to invest in the companies that are actually on a boom but one thing to keep remember is that’s exactly what people were doing when they invested in useless companies in the 80s.

Carefully invest in the companies that have published and have strong financial records. Hence, it is recommended to carefully invest in the trends of the companies that you can understand and track.

Also, keep in mind the fact that there is a huge difference between investing in a company that is currently in business and delivering good returns and investing in the new-fangled business.

To successfully invest in a good company, one should have the ability to see foresight and evaluate the financial performance of a company.

Portfolio diversification is imperative when investing in thematic investment because diversifying your money in different sectors mitigate the risk of losing money.

Benefits of Investing in Thematic Funds

1. Helps you to Create a High Powered Portfolio

Global investors like Warren Buffet and Peter Lynch once said that the successful way to create wealth for a long duration is only through focussed themes that possess a strong profit generation potential.

2. Enables you to Leverage on a Particular Theme

If you measure the performance of thematic stocks vs indexes over a fixed duration, then you may see a lot of difference in the performance of these stocks. Here, the former outperformed the other.

3. Sustainable themes can outperform the equity funds

It’s a fact that the themes that are sustainable for a longer period can outperform the equity funds. Hence, if you shift 10-15% of your portfolio into specific themes can bring a huge difference in your portfolio returns.

4. Specific themes can be added to mitigate the portfolio risks

In order to reduce the portfolio risk, you can add specific thematic stocks to your portfolio. When you add multiple themes to your portfolio, it not only diversifies it but also reduces the risks associated with certain stocks, which in turn improves the share trading returns.

5. It can multiply your amounts in the coming years

You have all heard of how an investment of Rs 10,000 in Wipro in 1980, costs around Rs 450 Crore today. Also, a minimum investment in Eicher motors in 2001 would give you a maximum profit today. That’s the power of a thematic investment.


Thematic investing requires a full understanding of the business models and market prospects and hence many people seek advice from experts who have in-depth knowledge about it.

Thematic investment is a lot more complicated than just investing your money in a diversified equity fund. It may be noted that not all themes will give you big returns. Hence you are required to carefully choose thematic funds.

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