Opt for Smart Theme-based Funds

By BankBazaar | May 11, 2012

In the world of investments, investors are constantly advised to never make investments by simply following a blind trend that has emerged in the industry. Although this is easier said than done, investors need to stick to it instead of making investments in a fund, simple because it has emerged victorious in a season. Choose funds keeping the rationality of your mind in the front-seat, rather than an illusion of making things work just because they have worked in the favor of someone else. Research plays an important role since the information you collect about the market and the funds that can be profitable to you, is going to decide your level of happy returns. Seek information from primary sources like your financial advisors or market analysts rather than your peer group of investors. This lesson holds true even in the case of sectoral or thematic funds. These funds are constructed around a specific investment theme that has emerged from a current economic trend, say infrastructure, real estate, financial services, or other sectors. Sectoral funds place their investments in schemes that belong to a certain sector or industry. These funds were a hot favorite a few years back, especially when the sector of infrastructure was in its glory days. However, these funds today are regarded as the worst performing funds due to the massive fall in the performance of these industries. By the time investors’ fall into the trap of sectoral or thematic funds, the fund has already finished its period of profitability, thereby sinking into the realms of a loss-generation cycle.

As an investor, you may be tempted to flow with the current of making investments in these funds as everyone else is doing so. However, their valuations may have already increased as everyone is scourging around for a chance to invest in these funds. Thus, the best time to buy these funds and wallow in their profitability is by going by their principle of ‘buying low and selling high’. Invest in them when their valuation is low and make use of their growth prospects. Sometimes, certain sectors of the market that haven’t quite made it to the limelight due to several reasons, may be the most profitable ventures, that are waiting to get rid of the veil cast over them. As a prudent investor, look over these issues and make investments in them before their valuations go over the wall. Some highly profitable thematic or sectoral areas of the investment industry are technology, banking and financial services, pharmaceuticals and FMCGs, and infrastructure. It is also important to remember that these funds may draw profits now, but their life of profitability is limited and quite restricted, especially when the economy falls back on track.

Thus, these funds are best suited for those investors who possess a high risk appetite and those who have had their fair share of experience in the market. It is not meant for those investors who have just initiated their steps towards investing their funds. Never make them a part of your core portfolio but use them as value-adding components to your portfolio. Any hasty decisions seeing the lucrative nature of the returns can topple your investments if you are the right place at the wrong time. No investor will like to opt for debts like a personal loan or a home loan to fulfill his financial requirements if he is setting aside a major portion of his income meant for investing. Therefore, it is mandatory to seek professional advice before you reach to any conclusion so that you can benefit from robust returns that the market generates.

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