Over 1000% Surge In Inflows In July: Here's What Put Sectoral And Thematic Funds Back In Business

We all love a comforting daal-chawaal meal but we all find ourselves reaching for pickles, papads, and sweets. In investing terms, this can translate to investing in sectors and themes that may be more exciting than staple funds. Despite the potential to give stellar returns, most planners advice to allocate only a small part of your assets into these.

This is because the schemes in the sectoral and thematic funds are labeled riskier. Given narrow themes, the risk factor here is that there are usually lesser companies to invest into when it comes to specific sectors and fresh ideas.

Despite this, the sectoral and thematic category has been the 'flavour of the season' and with winning themes like defence, investors were eager to pour money into it. A year ago, in August 2024, the inflows into the category stood at a whopping Rs 18,117 crore, according to data from the Association of Mutual Funds.

A true darling of the market, before it was not.

Since the beginning of this year, the inflows have been wonky, dipping to Rs 170.09 crore in March. Though inflows recovered from lows, it hovered just around Rs 2,000 crore.

July was the month that broke the rut. Inflows into the category spiked by 1881.8%, rising from Rs 475 crore in June to Rs 9,426 crore in July.

So what caused this inflow? What changed?

Enter NFOs or New Fund Offers.

The inflow of money from investors investing into new fund offers accounted for over Rs 7,400 crore. This is the majority of the total inflow into the category itself. New fund launches in the category was also the highest across various categories.

With seven new fund launches garnering these funds, there were offerings in new themes, strategies and ideas that were open in July.

The NFOs open were Axis Services Opportunities Fund, Bandhan Multi-Factor Fund, HDFC Innovation Fund, ICICI Prudential Active Momentum Fund, Mahindra Manulife Banking and Financial Services Fund, Nippon India MNC Fund and Sundaram Multi-Factor Fund.

Given this widespread and the large inflows, its safe to say NFOs have put the sectoral and thematic category back in business

"All the big fund houses have launched NFOs. They have a larger network, distributors and more," said Mohit Gang, co-founder of MoneyFront.

He explained that the inflow is more to do with the size itself of the fund house and the offer. The fatigue of lack of fresher themes also saw a turn-around thanks to NFOs into strategies like multi-factor and momentum.

"Liquidity have never been a problem in the Indian markets so its more about the big names coming with thematic ideas and pulling investors back in. Investors have the liquidity right now and are willing to put it into newer ideas," said Gang.