Retail investors often face a tough choice when picking mutual funds. They must decide which funds to invest in and which ones to avoid. Among various categories like flexi-cap, ELSS, value, multi-cap, and contra funds, thematic mutual funds stand out as a popular option.
What Are Thematic Mutual Funds?
For those unfamiliar, thematic mutual funds invest in stocks of companies within a specific theme. Examples include infrastructure, service industries, PSUs, or MNCs. These funds offer more diversification than sectoral funds. As a result, they typically carry lower risk compared to sectoral funds.
Performance Data for 2025
According to the latest AMFI data released on December 31, 2025, there are 238 thematic and sectoral mutual funds collectively. Their total assets under management amount to ₹5.37 lakh crore.
However, the data shows that only a few thematic funds delivered strong returns in 2025. Here are some popular thematic mutual funds and their one-year returns:
- Aditya Birla Sun Life Banking and Financial Services Fund: 20.78%
- Axis India Manufacturing Fund: 5.35%
- Bandhan Financial Services Fund: 14.50%
- Canara Robeco Consumer Trends Fund: 4.22%
- DSP Banking and Financial Services Fund: 24.54%
- Franklin Build India Fund: 5.39%
- Franklin India Opportunities Fund: 5.69%
- HSBC India Export Opportunities Fund: 1.19%
- ICICI Prudential Housing Opportunities Fund: 9.63%
- Invesco India ESG Integration Strategy Fund: -2.88%
Should You Invest in Thematic Funds in 2026?
Given their mixed performance in 2025, should retail investors consider thematic funds for 2026? We consulted experts for their insights.
Expert Perspectives on Risks and Strategy
Navy Vijay Ramavat, MD of Indira Group, notes that some themes like infrastructure and consumption faced pressure in 2025. Meanwhile, sectors such as auto, metals, and BFSI outperformed the broader market. He argues it is unfair to label all thematic funds as failures.
"Thematic funds are inherently riskier," Ramavat explains. "Unlike diversified funds that spread investments across multiple sectors, thematic funds concentrate on a single idea or sector. Their returns heavily depend on entry timing and the sector's cycle stage. Consequently, they do not move in sync with the overall market, which comprises various sectors performing at different paces. This makes thematic funds suitable for investors who actively track markets, understand sector rotations, or strongly believe in a specific theme."
Ramavat adds, "For most retail investors in 2026, thematic funds should serve as a small supplement, not the core of their portfolio. Without active monitoring, the risk of mistiming investments is higher compared to diversified or flexi-cap funds. Timing can significantly impact returns."
Long-Term View and Strategic Approach
Some experts believe investing in thematic funds should align with a broader philosophy rather than short-term gains.
Preeti Zende, founder of Apna Dhan Financial Services, states, "Thematic and sectoral funds are cyclical and may show fluctuating performance over time. Sectors like defence, infrastructure, metals, and pharma require a long-term perspective to deliver returns. Investors should avoid treating these funds as short-term investments. They should only consider them as part of a strategic approach if they understand the risks and can handle volatility."
Zende emphasizes that a tactical investment approach is crucial for thematic and sectoral funds.
