Thematic Equity Mutual Funds – Definition and Different Types


  • Thematic equity funds are basically of these themes - energy, dividend yield, consumption and MNC
  • Which type of thematic fund should you invest in? Read this post to know the same

There are various types of equity funds – large-cap, small-cap, large and mid-cap, mid-cap, multi-cap, sector funds, etc. One of the categories of equity mutual funds is thematic funds. Let us understand this better.

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What are Thematic Equity Mutual Funds?

Thematic equity mutual funds are those funds that invest in companies or stocks of a particular theme. These funds do not invest in stocks outside that theme. On the other hand, diversified equity funds can invest in any theme or sector.

Many people confuse thematic funds with sector funds, but both are different. Thematic funds invest in a theme which could comprise many sectors. For example, consumption-oriented thematic funds invest in consumer-facing sectors such as FMCG, Financial Services, Automobiles, etc. Whereas a sector fund invests only in a sector, so a banking fund will qualify as a sector fund since it invests only in banking stocks.

This makes thematic funds more diversified as compared to sector funds, giving the fund manager more options and a variety of stocks to pick and choose. Thematic funds are divided into 6 types or categories, let us look at all these.

Different Types of Thematic Funds

Dividend Yield Funds

These are open-ended equity funds that invest in dividend yield stocks or companies, which have a high dividend yield. These funds declare daily NAV like all other funds and the dividend received from the company which is a part of this fund’s portfolio is reflected in the NAV. So, if the stocks in the portfolio pay higher dividends, the NAV will rise faster and vice versa.

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Dividend yield funds, as per mandate, invest about 80-90% of the portfolio in high dividend yield stocks. However, the dividend yield is not the only criterion to pick stocks, the company’s financials, growth prospects, fundamentals and sector are also taken into consideration.

To know more about dividend yield funds, best dividend yield funds and should you invest, you can read another post of ours-

PSU Equity Funds

As the name suggests, these are funds that invest in stocks of public sector units (PSU) listed on the stock exchange. PSU Equity mutual funds are open-ended equity funds and invest in government-owned companies.

Historically, most of the large businesses in various sectors in India were run by the government. It was only post liberalization in 1991 that private sector companies were allowed to start a business in many sectors. These sectors include banking, oil & gas, telecom, metals, hospitality, aviation etc

To know more about PSU equity funds, best PSU equity funds and should you invest, you can read another post of ours-

Energy Funds

As the name suggests, these are funds that invest in stocks of companies engaged in the energy and natural resources sector. The energy sector comprises companies engaged in the business of oil, gas and metals.

This is a very large sector in India. Since being a large country, our energy sector-related requirements are very high. Most of the companies engaged in this sector are large corporations and are PSUs.

Some of the leading energy companies or energy stocks in India are Reliance Industries, Coal India, Tata Steel, Hindustan Zinc, HPCL, BPCL, GAIL etc. There are only two mutual fund schemes that are dedicated energy and natural resources funds.

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To know more about energy funds, best energy funds and should you invest, you can read another post of ours-

MNC Funds

As the name suggests, these are funds that invest in stocks of multinational companies (MNC) listed on the stock exchange. MNC mutual funds are open-ended equity funds and do not invest in Indian origin companies.

There are many global companies from various countries such as the US, the UK, Germany, Japan, South Korea, France, etc, who have subsidiaries in India. The parent company operates from the country of origin while the Indian business operates in India. These Indian businesses sell their goods and services in India and also export from India, thus generating revenue and profit.

Like Indian companies, these MNC stocks follow the same set of rules and regulations. Some of the leading MNC companies listed in India are Nestle, Gillette, Colgate, Kansai Nerolac Paints, P&G Hygiene & Health care, Bosch, etc.

To know more about energy funds, best energy funds and should you invest, you can read another post of ours-

Consumption Funds

As the name suggests, these funds invest in sectors that are consumption-oriented. Some of the consumption-oriented sectors are Automobiles, FMCG (Fast-moving Consumer Goods), Consumer durables, telecom, financial services, etc. Thus, these funds invest in consumer-facing companies that produce goods or offer services used by many consumers.

Some examples of consumption-oriented companies that are listed on the stock exchange are Hindustan Unilever, ITC, Nestle, Maruti Suzuki, Tata Motors, Bharti Airtel, SBI, HDFC Bank, Whirlpool. All these companies sell products or services bought by millions. Consumption thematic mutual funds invest in such companies.

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To know more about consumption funds, best consumption funds and should you invest, you can read another post of ours-CONSUMPTION FUNDS-DEFINITION, BENEFITS AND SHOULD YOU INVEST?

Other Thematic Funds

There are five broad themes: dividend yield, PSU, MNC, Energy and consumption for which mutual fund schemes exist, each one is explained above. There are some other smaller themes such as manufacturing, quant, commodities, exports, services and transportation where one or two funds are present. We have not covered these in detail unlike other themes since their scope is very narrow.

Key Takeaway

There are many equity mutual funds on the six themes mentioned above and the best funds have been explained for each theme. You can invest in themes that you like and feel they would do well in the future. We recommend consumption and MNC as the two best themes if you want to invest in a thematic fund. You should be mindful of the fact that investment in a thematic fund should be done for a long term horizon and these are less diversified when compared to other equity funds.

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