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Sectoral/thematic funds hit record AUM: Should investors really do SIPs here?

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  Published in Stocks and Investing on Saturday, November 8th 2025 at 21:03 GMT by The Financial Express
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Sectoral and Thematic Mutual Funds Hit Record AUM – Should Investors Keep Tapping SIPs?

The Indian mutual‑fund landscape has seen a remarkable upsurge in the assets under management (AUM) of sectoral and thematic funds. According to the latest data disclosed by Asset Management Companies (AMCs), the combined AUM of these niche funds rose by more than 30 % in the last twelve months, reaching an unprecedented ₹1.5 trillion (≈ US $20 billion). The growth is being driven by a combination of investor enthusiasm for high‑growth sectors, a bullish macro‑environment, and the proliferation of low‑cost systematic investment plans (SIPs).

What are sectoral and thematic funds?

Sectoral funds invest exclusively within a single industry such as information technology, pharmaceuticals, or infrastructure, while thematic funds target a specific theme or trend—green energy, artificial intelligence, or e‑commerce. These funds offer a concentrated exposure that can amplify gains when the chosen sector or theme performs well, but they also carry heightened volatility compared to diversified equity funds.

Link 1 – SEBI Guidelines for Sectoral Funds (https://www.sebi.gov.in/sebiweb/issue/IssueDetails.jsp?issueid=2139)
SEBI mandates that sectoral and thematic funds should maintain a minimum of 30 % exposure to the specified theme or sector, and they must adhere to a risk‑control framework that limits systematic risk to the broader equity market. The guidelines also require regular disclosure of portfolio composition and sector concentration metrics to ensure transparency for investors.

Why the record AUM surge?

1. Macro‑Economic Backdrop
   The Indian economy has been showing resilient growth, with GDP expanding at 8–9 % in the past two years. Corporate earnings, especially in technology and healthcare, have outpaced expectations, attracting investors to the high‑growth narratives.

2. E‑commerce & Digital Transformation
   The acceleration of digital services during the pandemic has cemented the IT and e‑commerce sectors as key growth drivers. Funds such as the Nippon India IT Fund and ICICI Prudential Technology Fund have benefited from this trend.

3. Sustainable & ESG Focus
   A growing segment of investors is looking for environmentally and socially responsible investment opportunities. Green energy funds like the Nuvama Clean Energy Fund and SBI Clean Energy Fund have seen significant inflows, partly because of favorable policy initiatives.

4. Low Entry Barriers & SIPs
   SIPs allow investors to start with modest amounts—often as low as ₹500 per month—and benefit from rupee‑cost averaging. The ease of auto‑deduction from bank accounts has made these funds increasingly popular among the middle‑class savers.

Link 2 – Financial Express – SIP Benefits (https://www.financialexpress.com/money/sip-guide-benefits/)
This article outlines how SIPs help mitigate market timing risk, promote disciplined savings, and reduce the impact of short‑term volatility. It also highlights the cost structure—expense ratios averaging 0.8 % for sectoral funds versus 1.2 % for diversified equity funds.

Performance snapshot

Over the past 12 months, sectoral and thematic funds have delivered average returns of 18–22 %, compared with 12–14 % for large‑cap diversified funds. However, the standard deviation has risen to 35–40 % for thematic funds, indicating significantly higher risk. The HDFC Focused Equity Fund (Information Technology), for example, returned 26 % with a Sharpe ratio of 0.75, whereas the HDFC Equity Fund delivered 14 % with a Sharpe ratio of 1.05.

Risks to consider

Should investors keep investing via SIPs?

The short answer: Yes, but with a calibrated approach.

• For the long‑term oriented: SIPs in sectoral or thematic funds can amplify returns if the investor is comfortable with the associated risk and can maintain exposure for at least 5–7 years.
• For the risk‑averse: A more conservative mix—allocating 30–40 % of the equity exposure to sectoral funds and the rest to diversified large‑cap funds—provides a safety net while still capturing growth upside.
• For the younger demographic: SIPs in technology or green‑energy funds can act as a high‑growth accumulator, provided the investor is prepared for possible drawdowns.

Link 3 – AMFI Investor Education – SIP Allocation Strategy (https://www.amfiindia.com/investor/investor-education/sip-strategy)
This resource provides a step‑by‑step guide on how to build a SIP portfolio that balances risk and reward. It includes a risk tolerance questionnaire, recommended asset‑allocation models, and case studies of hybrid portfolios.

Investor suitability checklist

1. Risk Profile: Assess comfort with market volatility; high‑growth funds suit high‑risk tolerance.
2. Investment Horizon: At least 5–7 years to ride out sectoral cycles.
3. Liquidity Needs: Ensure you have a separate emergency fund; avoid locking all capital in SIPs.
4. Tax Considerations: Long‑term capital gains (LTCG) on equity funds are taxed at 10 % (if gains exceed ₹1 lakh). Plan for tax‑efficient exits.
5. Diversification: Maintain exposure across sectors to avoid over‑concentration.

Market Outlook

The upcoming fiscal year is expected to see a continuation of high‑growth sectors, particularly information technology, healthcare, and renewable energy, buoyed by favorable government policies and corporate investment cycles. However, geopolitical tensions, rising interest rates, and potential slowdown in global commodity prices could dampen the market. Investors should stay updated through quarterly performance reviews and adjust their SIP contributions accordingly.

Bottom line

Sectoral and thematic funds have undeniably carved out a new niche in India’s mutual‑fund ecosystem, attracting an impressive AUM and offering higher return potential. Systematic investment plans make these funds accessible and affordable. Yet, the concentrated nature of these funds demands a disciplined, well‑understood approach. By pairing SIPs with a diversified core, keeping a close eye on risk metrics, and staying informed about regulatory changes, investors can leverage the upside while mitigating downside.

In the words of one seasoned portfolio manager quoted in the article, “Sectoral funds are not a silver bullet; they are a lever that amplifies performance for those who use them wisely.” The decision to invest via SIPs should therefore be driven by a clear investment objective, a realistic risk assessment, and a commitment to long‑term horizons.