What is thematic-energy mutual fund?

In the realm of mutual funds, one intriguing option that has gained traction among investors is the thematic fund. Thematic funds, in accordance with their name, focus solely on investing in a particular, pre-decided theme, making it an attractive avenue for investors keen on the particular theme and the companies adhering to the same. As equity mutual funds, a thematic fund offers investors the ability to earn robust returns, while also posing a certain amount of risk, as is typical of equity schemes. Among the thematic fund category, thematic-energy mutual funds are witnessing tremendous favour from investors as these offer investment opportunities across the larger energy theme, which is picking pace on a global scale. Here is everything you need to know about investment opportunities in a thematic fund and thematic-energy mutual funds.

Understanding thematic fund

Thematic funds represent a distinctive approach to investing in mutual fund. Unlike traditional diversified funds or sectoral funds, thematic funds focus on investing in companies and sectors that are unified by a particular theme or trend. These themes can range from broad concepts like, healthcare, sustainability, or technology fund to more niche areas such as robotics, artificial intelligence, or clean energy. By concentrating on specific themes, thematic funds aim to capitalise on emerging trends and industries, potentially offering investors the opportunity to benefit from sectors poised for growth. Thematic funds provide investors with a targeted way to align their investments with their beliefs, interests, or expectations about future market trends, offering both diversification and the potential for higher returns. You can invest in thematic mutual funds through a SIP investment to make the journey towards building wealth more efficient and convenient.

Assessing thematic-energy mutual funds

Thematic-energy mutual funds belong to the category of equity mutual funds that are distinctively different from traditional sectoral funds. While sectoral fund concentrate on specific industries, thematic fund take a broader approach by investing in companies across various sectors unified by a common theme. For instance, the energy-themed fund encompasses investments in steel, oil and gas, coal, and related sectors.

Advantages to consider

Thematic-energy funds offer several advantages for investors seeking exposure to specific themes, as listed below –

• Diversification with a focus: Unlike traditional diversified funds, thematic-energy funds offer diversification within a focused theme - energy. This can be advantageous for investors looking to capitalise on emerging trends like energy and allied industries, without putting all their eggs in one basket.
• High growth potential: Thematic funds, including thematic-energy funds, are inherently high-risk, high-reward investments. Their performance is closely tied to the success of the underlying theme. For investors with a high-risk tolerance and a long-term investment horizon, thematic-energy funds present an opportunity for potentially significant returns.
• Tailored for aggressive investors: Thematic-Energy Funds are best suited for aggressive investors willing to take on higher levels of risk in pursuit of higher returns. However, it is essential to maintain a balanced portfolio and limit exposure to thematic funds to around 10% to manage risk effectively.

Should you invest?

Investing in thematic-energy mutual funds is best suited for investors who exhibit a certain risk appetite and possess a keen interest in capitalising on specific trends within the energy sector. These funds are particularly appealing to individuals with a long-term investment horizon and a willingness to tolerate higher levels of volatility in pursuit of potentially significant returns. Aggressive investors who are comfortable with taking on higher risks can find thematic energy funds to be an attractive addition to their investment portfolios. However, it is crucial for investors to maintain a balanced approach and not over-allocate their investments in thematic funds, typically limiting exposure to around 10% of their overall portfolio. Additionally, investors should conduct thorough research and due diligence to ensure that the thematic energy fund aligns with their investment objectives, risk tolerance, and expectations regarding the performance of the energy sector.

How to invest in thematic-energy funds?

Investing in thematic-energy mutual funds is a straightforward process that can be done online through platforms like third-party applications or websites of the asset management companies which offer the funds you are interested in. Here is a step-by-step guide:

• Register online on the app or website.
• Navigate to the Mutual Fund section and select the Thematic-Energy fund you wish to invest in.
• Choose the investment amount and mode (SIP or Lumpsum).
• Provide your KYC details, including PAN number and bank details, to complete the investment process.

Some of the top-performing thematic-energy mutual funds in recent years include the DSP Natural Resources and New Energy Fund, the SBI Energy Opportunities Fund and the Tata Resources & Energy Fund.

Thematic-energy mutual funds offer investors a unique opportunity to align their investments with specific themes or trends shaping the economy. While they come with higher risks, they also present the potential for significant returns for investors with a long-term perspective and a willingness to weather market fluctuations. By understanding the nuances of thematic investing and diversifying their portfolios accordingly, investors can harness the power of thematic-energy funds to achieve their financial goals.

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