With a decline in inflows for sectoral and thematic mutual funds in April by 28%, market experts say that investors chase the hottest investment and when the interest fades away investors look for something better and with the inflow being so small of the total inflows, one should follow the trend of a longer horizon.
Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance shared with ETMutualFunds that many investors tend to chase the hottest investment in the market, and when the glamour goes away, they look for something else which seems to have happened in this case as well, with sector funds seeing a decline in fund inflows.
Also Read | AMFI Data: Equity mutual fund inflows decline 5% MoM to Rs 38,440 crore in April
Following significant theme-based gains last year, many investors are now evaluating more diversified investment approaches rather than theme-based investing, Minocha further said.
Another expert, Pallav Agarwal, Certified Financial Planner at Bhava Services LLP, told ETMutualFunds that out of the total inflow of Rs 38,000 crs in equity funds in the month of April, the inflow in sectoral/thematic funds is just 5% or Rs 1,949 crore and when numbers are so small, judging a trend in investor sentiment shift is inconclusive so one should rather follow trend of 8-12 months rather than month on month.
According to the AMFI data, sectoral and thematic mutual funds witnessed a 28% decline in monthly inflows in April to Rs 1,949 crore compared to Rs 2,698 crore in March. On a year on year basis, the inflows went down 3% from an inflow of Rs 2,000 in April 2025.
Investors becoming cautious after recent market volatility?Agarwal said that in the recent market volatility, these funds, especially PSU based, IT sector, Defence sector and banking had been very volatile due to geopolitics, depreciating INR, energy prices and tariff related uncertainty and this might have led investors to avoid these funds.
Minocha said investors are now more cautious about sectoral and thematic funds, as recent market fluctuations have shown that these investment types are more volatile and experience greater price changes than standard diversified equity funds.
He further said that many investors are now investing in these types of funds only as tactical exposure, not as their main core investments.
April performanceIn April, sectoral and thematic mutual funds excluding international funds offered returns upto 20% and there were 243 funds in the category. Out of 243 funds, 67 funds gave double-digit returns and 176 funds gave single digit returns.
The top three performers were from Quant Mutual Fund. Quant Infrastructure Fund, Quant Commodities Fund, and Quant PSU Fund gave 20.06%, 18.82% and 18.72% respectively. Baroda BNP Paribas Manufacturing Fund was the last one to give double digit gains as the fund posted a return of 10.02%.
Motilal Oswal Manufacturing Fund gave 9.96% and HDFC Technology Fund gave the lowest return of around 1.07% in April.
Which sectors look attractive?Post seeing the inflows and performance, Minocha said that investors still show interest in manufacturing and defence, banking and consumption, healthcare, and certain technology sectors, even though those sectors experience reduced funding.
Long-term investors should consider a diversified approach to investing and let the fund managers take the sector calls, while investing in sectoral themes, timing is crucial both when investing and when redeeming, and there is a high probability that one of the two could go wrong, significantly impacting returns, Minocha further said.
Agarwal said that defence and PSU oriented funds are currently pulling highest interest from the investors. However, due to reasonable valuations, the banking and financial sector funds look most attractive in the long-term.
Should one continue SIP?
The inflows in April marked the second consecutive month of decline in inflows as in March the category saw a dip of 10% in the monthly inflows. In the previous financial year, sectoral and thematic funds received total inflows of Rs 29,974 crore.
With these funds seeing a dip in inflows and offering good returns, investors are wondering whether to continue with their SIPs in these funds and how one should approach these funds in uncertain market conditions.
Agarwal said that interestingly, periods of low inflow are better for investment in any category as investment is being done on merit and not momentum, SIP tends to work better during uncertain market conditions and should be continued.
He further said that investors should ensure that exposure in such funds should not be more than 10-15% and these themes should be played through a complete cycle of 5-7 years.
Minocha said that SIP investors should maintain their current sectoral fund investments while keeping their total exposure to sectoral funds under control across their entire portfolio and investors should use sectoral funds as supplemental investments, as they are not effective primary investment vehicles.
He also said that investors should avoid chasing recent winners during market uncertainty and instead focus on diversified themes such as flexi cap funds, large & mid cap funds, and multi cap funds.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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