Sectoral & Thematic Funds: High Reward, High Risk

Sectoral funds invest in a single industry (banking, pharma, IT). Thematic funds bet on a broader idea (consumption, manufacturing, ESG). Both are concentrated — which cuts both ways.

The appeal When a sector is in favour, these funds can top the charts. A pharma or IT fund can massively outperform a diversified fund for a year or two.

The danger Concentration means no diversification cushion. When the theme falls out of favour, the fund can drop hard and stay down for years. You're also implicitly timing a sector — hard to get right.

How to use them (if at all) - Treat them as a small satellite (5–10% of your portfolio), never the core. - Have a thesis and an exit plan — don't just chase last year's hot sector. - Best for experienced investors who understand the cycle.

For most people, a diversified flexi-cap fund already gives sector exposure without the concentration risk. See the data on any fund page before betting on a theme.