Most Thematic Funds show negative 1-year returns, but 3 outliers deliver over 20%; here's why

While one year is generally considered too short to evaluate the performance of a mutual fund scheme, thematic or sectoral equity mutual funds may be an exception. These funds have seen huge interest from both investors and fund houses in recent years, making even their short-term performance worth an analysis.

Thematic mutual funds have flooded the market, apparently aiming to cash in on the market boom preceding the corrections that started in 2024. And the numbers are nothing short of startling:

• As of August 4, 2025, there are 211 thematic schemes listed under the sectoral/thematic category by the Association of Mutual Funds in India (AMFI). Of these, 43 thematic funds have not even completed a year since launch.

• The combined daily asset under management (AUM) of all 211 thematic schemes as of July 31, 2025, is approx. ₹4.9 lakh crore. Of this, the new schemes launched in the last one-year duration account for a daily AUM of around ₹50,000 crore.

What about returns?

Thematic funds are not for starters. Most of the schemes in this category have delivered negative returns in the last 12 months till July 31, 2025.

AMFI data shows 97 out of the 168 sectoral schemes that have existed for more than a year have delivered less than zero percent recent returns in a year till July 31, meaning they even failed to protect the investors' principal amount in this period.

The performance of most of the remaining funds is also not very encouraging. However, there are a few outliers like below with over 20% returns in a year till July 31:

• Benchmark: BSE Healthcare TRI
• 1-year direct plan return: 24.88
• Benchmark return: 12.71
• Information ratio: 2.57
• Daily AUM (till July 31): Rs 409.43 crore

• Benchmark: BSE Healthcare TRI
• 1-year direct plan return: 22.19%
• Benchmark return: 12.71
• Information ratio: 1.86
• Daily AUM: Rs 1936.05

• Benchmark: Taiwan Capitalization Weighted Stock Index
• 1-year direct plan return: 32.18%
• Benchmark return: 25.16
• Information ratio: 0.45
• Daily AUM: Rs 351.43

Why is there so much difference in the returns among thematic funds?

Thematic equity funds track specific themes or sectors of the market. For instance, healthcare, banking, technology, infrastructure, defence, and many more. Their ability to generate returns is closely tied to the overall performance of the sector or the theme they are tracking.

However, even in the well-performing sectors, a fund manager's stock-picking and asset allocation abilities may make a lot of difference.

Let's understand with the example of health and pharma funds:

Most of the mutual funds based on the health and pharma theme have delivered positive returns in a year. However, there is a big difference in their returns even when they are tracking the same index.

Overview of Thematic Mutual Funds (As of August 4, 2025)

What should you know before investing in thematic funds?

The returns of thematic funds mentioned above, including the three outliers, may not sustain going forward. These are based on their past 1-year performance, which is not indicative of the future performance of thematic funds, including those mentioned in this article.

Thematic funds are generally considered extremely risky for common investors, especially those who do not actively track the markets.

Therefore, investing in these schemes without fully understanding the themes they are tracking, the overall risks involved, and the fund manager's abilities can be disastrous for an investor.