Are you one amongst those who keep wondering the
difference between sectoral schemes and thematic schemes? If yes,
this blog might give you some insight.
As the name suggests, sectoral schemes are the ones that invest in the stocks of companies belonging to a particular sector such as infrastructure, pharmaceuticals, technology etc. They are usually considered to be very high risk mutual fund schemes that are especially suitable for long-term investments. These kind of schemes usually take advantage of the sectors that have the potential to grow. However, since these schemes focus on a specific sector of the economy, they might limit the sectoral diversification aspect for your portfolio.
When it comes to investing in sectoral schemes, it is important to be mindful of the investment timings. The performance of the sectors can be cyclical and therefore entering or exiting in such schemes has to be a well thought decision. So if you hit the right spot, you may earn potential return on investment.
If you have absolute understanding of a specific sector/industry and if you wish to invest in companies within that industry, you may opt for these types of schemes. Nevertheless, it’s crucial to keep in mind that these schemes focus on specific sectors, and therefore, the volatility and risk factor could be more than other diversified schemes.
Thematic schemes invest in sectors, industries and stocks of companies that follow a particular theme or an idea.
Having in-depth knowledge about market trends and knowing how to time the market, can be helpful when it comes to investing in a scheme that boosts a particular theme. However, always remember that like sectoral schemes, thematic schemes are also cyclic in nature and therefore tend to be more volatile than other diversified schemes.
These schemes aims to help you create wealth over the long term by focusing on relevant concepts that have a logic and potential for growth. While thematic investing can be risky, you may also consider the fact that, thematic schemes, if sustained and performs well over a period of time, may help outperform other types of schemes.
One factor that you should be cognizant about is that when you choose a thematic scheme, you will have a smaller set of stocks to research and monitor unlike the diversified equity schemes, that may have a larger set of stocks. This makes thematic schemes one of the simplest scheme types to track or monitor.
• Sectoral schemes invest in specific sectors, whereas, thematic schemes invest in a theme or concept that may encompass various sectors.
• Both sectoral and thematic schemes are very high-risk-return equity schemes and are considered to be volatile in nature.
• Thematic schemes may be broader than the sectoral schemes as they invest in multiple sectors that follow the same theme, unlike the sectoral schemes.
It’s crucial for investors to consider their investment objectives and risk appetite before deciding whether to invest in sectoral or thematic schemes. You may also seek help from professional fund managers to choose the right scheme for you!
An investor education initiative by ICICI Prudential Mutual Fund
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Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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