Thematic funds have become the hottest talking point in India’s mutual fund market. Just a few years ago, they were a niche category, attracting only select investors. Fast forward to mid-2025, assets under management (AUM) in thematic and sectoral schemes have jumped from ₹1.7 trillion in March 2023 to ₹5.1 trillion by June 2025, according to AMFI data. That pace of growth even left flexi-cap funds trailing.
This surge raises two key questions. What exactly are thematic funds? And which ones should investors keep an eye on today?
What Are Thematic Funds?
At their core, thematic funds invest in a specific idea, industry, or sector. It could be technology, manufacturing, infrastructure, consumption, or even a theme like business cycles. The appeal lies in the chance to ride the growth of a fast-expanding sector.
Imagine India’s push for manufacturing under “Make in India.” A fund tied to this theme can capture the momentum of that sector more directly than a diversified equity fund. If the chosen theme performs well, returns can outpace traditional equity schemes. But this focus comes at a cost: higher risk.
Why Investors Are Rushing to Thematic Funds
Market analysts say the draw lies in two factors. First, they offer exposure to high-growth areas without needing to pick individual stocks. Second, their performance often aligns with broader economic cycles, which makes them attractive when certain industries are booming.
As finance expert Gupta said in a recent investor forum, “Thematic funds allow retail investors to participate in structural stories of India’s economy. They are not substitutes for core holdings but can be great satellite allocations.”
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Expense Ratio: The Hidden Cost You Should Watch
Every mutual fund charges a fee to manage your money, known as the expense ratio. It covers administrative and operational costs. A lower expense ratio means more of your money stays invested. For thematic funds, where returns can be volatile, keeping costs down matters even more.
5 Thematic Funds with Lowest Expense Ratios in 2025
Here’s a closer look at five thematic funds that combine unique strategies with low expense ratios:
1. Edelweiss Business Cycle Fund
- Launch Date: July 2024
- AUM: ₹1,872 crore
- Expense Ratio: 0.42%
- Performance:
- 3 months: 2.5%
- 6 months: 13%
- 1 year: -8.9%
- Takeaway: Attractive cost structure, but one-year performance dipped with broader market corrections.
2. SBI Equity Minimum Variance Fund
- Launch Date: March 2019
- AUM: ₹224 crore
- Expense Ratio: 0.42%
- Performance:
- 3 months: 0.5%
- 6 months: 7%
- 1 year: -4%
- Takeaway: Modest returns, steady long-term strategy aimed at minimizing volatility.
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3. Sundaram Business Cycle Fund
- Launch Date: June 2024
- AUM: ₹1,800 crore
- Expense Ratio: 0.43%
- Performance:
- 3 months: 2.5%
- 6 months: 13.5%
- 1 year: 7%
- Takeaway: Strong medium-term growth with higher risk, suited for investors tracking economic cycles.
4. Nippon India Quant Fund
- Launch Date: January 2013
- AUM: ₹100 crore
- Expense Ratio: 0.47%
- Performance:
- 3 months: 1%
- 6 months: 12%
- 1 year: 2%
- Since launch: 14% CAGR
- Takeaway: Rule-based quant approach with solid long-term track record.
5. Axis India Manufacturing Fund
- Launch Date: December 2023
- AUM: ₹5,345 crore
- Expense Ratio: 0.49%
- Performance:
- 3 months: 2%
- 6 months: 16%
- 1 year: -1.5%
- Since launch: 23%
- Takeaway: High AUM and strong gains tied to India’s expanding manufacturing sector.
Risks Investors Must Consider
Thematic funds don’t spread risk across multiple industries. If the chosen sector underperforms, losses can be steep. That’s why they fall in the “high-risk, high-return” bucket.
Practical tips from experts:
- Treat them as satellite holdings, not the core of your portfolio.
- Keep allocation limited, usually under 10–15% of your equity investments.
- Stay patient. Sectors rise and fall with economic cycles, so a long-term horizon is key.
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Final Word
Thematic funds in India are drawing unprecedented investor interest in 2025. They offer a chance to tap into big growth stories like infrastructure, consumption, or manufacturing. Yet they are not for the faint-hearted. Lower expense ratios make some of these schemes more attractive, but the decision to invest should balance risk appetite, time horizon, and overall portfolio strategy.
As investors chase high-growth themes, remembering the basics discipline, diversification, and cost awareness can turn a risky bet into a rewarding one.
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