Theme-based funds offer investors an opportunity to participate in the growth of a dominant theme. However, investors in such funds are exposed to substantial risks in case a particular theme goes out of favor.
In recent times, a host of new mutual fund schemes with innovative themes like leadership, valuation, brand, etc., have hit the market. These funds belong to a class of mutual funds known as theme-based funds. These funds aim to cater to the varied needs of the investors. For instance, if an investor is looking to cash in on the growing consumption pattern in India, Birla Sun Life GenNext Fund is a fund that can meet his need. Further, if an investor wants to ride the dividend yield theme, there are funds like Tata Dividend Yield, Principal Dividend Yield and ABN Amro Dividend Yield Fund which fit the bill.
While theme-based funds allow an investor to benefit from a theme in vogue, they also entail certain risks. An investor in a theme-based fund is exposed to downside risk (i.e., erosion in investment) in case a particular theme goes out of favor. Another drawback is that unlike other equity diversified funds, a theme-based fund has a limited universe of stocks to choose from. This, in turn, means that these funds have limited scope for diversification. However, notwithstanding these shortcomings, theme-based funds offer an opportunity to investors to benefit from a dominant theme. |
