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Over a period of 5-7 years, what is riskier, thematic fund or small cap fund?

Dhirendra Kumar enumerates the pros and cons of thematic funds and small cap funds. He also says what would be a better option

Transcript: They are both different. Thematic funds are more to do with a particular theme and not a specific sector. If the theme works, it can do wonders & be very rewarding for investors. However, it is like a gamble. If the theme doesn't work or if you catch the theme at an inappropriate time, then it can be very risky. Investors generally tend to invest in something that has already gone up & not necessarily in something that is likely to go up. To predict and choose a theme which will do good in the future is very difficult.

Small cap companies are small in size and have a potential to grow faster than large-cap companies. Small cap companies are not like thematic funds and 20-30% of your portfolio should have small cap companies. Having said that, small cap companies are vulnerable to an economic downturn, regulation change or aggressive competition. For this reason, leave the part of choosing small cap companies to your fund manager. Invest in an actively managed diversified equity fund which will have an exposure of small cap companies and the fund manager will take a call on that.

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