Retail investors frequently find themselves in a dilemma over which mutual funds to invest in and which ones to overlook. Among a wide range of categories, such as flexi-cap, ELSS, value, multi-cap and contra funds, one category that is quite popular is thematic mutual funds.
What are thematic funds?
Those who are not aware, thematic mutual funds select stocks of companies in industries that belong to a particular theme. For example, infrastructure, service industries, PSUs or MNCs. They are more diversified than sectoral funds and hence have lower risk than sectoral funds.
Collectively, there are 238 thematic (and sectoral) mutual funds with a total AUM (assets under management) of ₹5.37 lakh crore, according to the latest AMFI data, released on 31 December 2025.
However, the data revealed that only a few thematic funds delivered promising returns in 2025.
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Some of the popular thematic mutual funds and the returns delivered by them are as follows: Aditya Birla Sun Life Banking and Financial Services Fund (20.78%), Axis India Manufacturing Fund (5.35%), Bandhan Financial Services Fund (14.50%), Canara Robeco Consumer Trends Fund (4.22%), DSP Banking and Financial Services Fund (24.54%) and Franklin Build India Fund (5.39%).
Other thematic funds included Franklin India Opportunities Fund (5.69%), HSBC India Export Opportunities Fund (1.19%), ICICI Prudential Housing Opportunities Fund (9.63%) and Invesco India ESG Integration Strategy Fund (-2.88%).
| Thematic funds | 1-year-return (%) |
|---|---|
| ABSL Banking and Financial Services Fund | 20.78% |
| Axis India Manufacturing Fund | 5.35% |
| Canara Robeco Consumer Trends Fund | 4.22% |
| Franklin Build India Fund | 5.39% |
| Franklin India Opportunities Fund | 5.69% |
| HSBC India Export Opportunities Fund | 1.19% |
| ICICI Prudential Housing Opportunities Fund | 9.63% |
| Invesco India ESG Integration Strategy fund | -2.88% |
Should you invest in thematic funds in 2026?
Considering their disappointing performance in 2025, should you still opt for them in 2026? We asked a few experts, and they shared their perspectives.
Navy Vijay Ramavat, MD, Indira Group, argues that some themes, such as infrastructure and consumption, were under pressure. At the same time, sectors such as auto, metals, and BFSI actually did better than the broader market. So it wouldn’t be fair to say that thematic funds, as a whole, failed.
“That said, thematic funds are naturally riskier. Unlike diversified funds that spread money across many sectors, thematic funds focus on just one idea or sector. Their returns depend a lot on when you enter and where that sector is in its cycle. Because of this, they won’t move in line with the overall market, which is made up of many sectors moving at different speeds. This is why thematic funds suit investors who closely track markets, understand how sectors take turns to perform, or have strong belief in a specific theme,” he said.
“For most retail investors in 2026, thematic funds are better kept as a small add-on, not the main part of the portfolio. If they’re not actively monitored, the chances of getting the timing wrong are higher than with diversified or flexi-cap funds—and that timing can make a big difference to returns,” added Ramavat.
Meanwhile, some believe that investing in thematic funds should be part of a broader investing philosophy rather than purely driven by short-term returns.
Preeti Zende, founder of Apna Dhan Financial Services, said, “Thematic and sectoral funds are cyclical in nature and may experience fluctuating performance over time. Sectors like defence, infrastructure, metals, and pharma require a long-term perspective to yield returns on the investments made. It is therefore essential to avoid viewing such funds as short-term investments; they should only be considered as part of a strategic approach if you understand the associated risks and can manage the volatility.”
Zende pointed out that a tactical investment approach is crucial for thematic and sectoral funds.
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