Key facts
- Investor appetite for sectoral and thematic mutual funds significantly weakened in May.
- Net inflows into sectoral and thematic funds dropped by 67% to Rs 647 crore in May.
- Gold ETFs experienced net outflows in May.
- Experts suggest a shift towards diversified strategies over concentrated thematic exposure.
- Thematic funds are considered suitable for experienced investors with a small allocation.
Investor interest in sectoral and thematic mutual funds significantly waned in May, with inflows plummeting by 67% to Rs 647 crore, according to AMFI data. This marks one of the steepest declines among equity-oriented schemes. Concurrently, Gold ETFs experienced net outflows, signaling a broader trend of moderating investor appetite for concentrated bets.
Experts suggest this slowdown reflects a preference for diversified strategies over thematic exposure, especially amid heightened market uncertainty and wide sector performance differentials. Manish Kothari, Co-Founder & CEO of ZFunds, noted that getting sector calls wrong can significantly impact returns, citing a 50-percentage-point differential between BSE Power and Nifty IT in under six months. Pallav Agarwal, Certified Financial Planner at Bhava Services LLP, added that the data indicates a lack of conviction rather than aggressive profit-booking, exacerbated by the absence of new fund launches in May.
Despite the flow slowdown, some sectoral and thematic funds delivered strong returns in May, with the Mirae Asset Global X Artificial Intelligence & Technology ETF FoF leading at 20.57%. However, experts advise that thematic investing is best suited for experienced investors with a small, selective allocation, emphasizing that diversified equity funds should form the core of most portfolios. Themes focused on domestic structural growth stories like capital expenditure, defence, healthcare, and consumption are considered attractive for the long term.