equity mutual funds: MF investors rush into ‘hot sectors’, draw caution

Mumbai Thematic and sector schemes have received more than half of the investor money into equity mutual funds in the past three months thanks to a slew of product launches.

The strong appetite has helped thematic and sector funds emerge as the largest category in terms of money managed among equity mutual funds, raising concerns that investors might be chasing the latest fads in the market.

Over the last three months, thematic and sectoral funds attracted about ₹60,000 crore, out of the ₹1.12 lakh crore flows into equity mutual fund schemes. This is now the biggest equity mutual fund category, ahead of flexi-cap, with assets of ₹4.21 lakh crore, according to Association of Mutual Funds of India (AMFI). The mutual fund industry managed equity money to the tune of ₹28.5 lakh crore as on July 31. Most of the flows into thematic and sector funds are lump sum investments into new fund offers (NFOs), said mutual fund distributors.

“The uninterrupted market rally over the past 1-2 years has led to a spate of NFOs, particularly in the sectoral/thematic segments,” said Roshni Nayak, founder, Goalbridge, a Sebi registered investment advisor. “Retail investors primarily invest in such NFOs, allured by the spectacular rally in these themes.”

There has been a spate of new fund offer (NFOs) in themes or sectors such as manufacturing, energy, business cycle, special opportunities, defence and PSUs. Among the large NFOs from the top fund houses, HDFC Manufacturing Fund raised ₹9,500 crore, SBI Energy Opportunities raised ₹6,653 crore, SBI Automotive Opps ₹5,710 and ICICI Energy Opportunities ₹8,059 crore. Most of these NFOs are in themes like defence, PSU and manufacturing, which have returned 90-120% over the last year. Regulations stipulate that a fund house can have only one scheme in each category. With large fund houses having exhausted their diversified schemes product suite, they are launching thematic and sectoral funds.”Distributors earn higher commissions on thematic funds than on diversified ones,” said Kavitha Menon, a Sebi registered investment advisors. She advises investors to be careful of thematic funds.Financial planners are advising investors to stick to diversified equity schemes such as flexicap funds, which bet on a mix of large-cap, mid-cap and small-cap stocks depending on the comfort of the money manager.