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Is it a good idea to hold thematic funds?

Dhirendra Kumar tells why you should not invest in a thematic fund

I am investing in Tata Consumer Fund and Sundaram Rural Fund. Is it a good policy to hold these thematic funds?
- Divya

Transcript: It is not a good idea to invest in thematic funds. But if you have been investing in the rural India fund for last two-three years, it has turned out to be very rewarding one. But if you have started investing in them after seeing the returns and because they have done well, you could be in for a surprise. Because all the thematic funds show extreme cyclicatlity. That is why they are either at the top or at the bottom. Many investors get sucked into such funds because of their recent past performance. You should set your principles right. For a substantial part of your portfolio, choose a diversified vehicle, so that the fund manager is able to deliver what he is supposed to by choosing great stocks from anywhere. When you are choosing a thematic fund, you are telling the fund manager to invest only in companies which have a rural focus or they are consumer companies or invest in only technology companies or likewise. He is unable to exercise his flexibility to deliver what he is supposed to. Also, you should invest regularly and not try to time it. Timing is sometimes rewarding but extremely difficult to do it. Average your investment. If you want to invest in a thematic fund, just allocate 10 to 15 per cent of your portfolio and take it as a learning experience.

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