Losing steam: Thematic and sectoral funds see big investor cool-off

As equity market volatility rises and new fund launches dry up, inflows into sectoral and thematic mutual funds have declined sharply in 2025, say industry experts

Investor interest in sectoral and thematic funds — the largest and riskiest equity mutual fund (MF) category — has waned in recent months following a nearly year-long period of strong inflows.

 

In calendar year 2025 so far, monthly inflows have been only a fraction of the investments seen in the previous year. These funds have garnered ₹19,000 crore during the January–May 2025 period, just 13 per cent of the ₹1.5 trillion inflows recorded in 2024.

 

According to MF distributors, the slump in inflows is due to two factors, both stemming from the equity market correction after September 2024. First, new fund offerings (NFOs), the key driver of inflows in 2024, have dried up in recent months. Second, subdued equity market sentiment has pushed investors towards relatively lower-risk equity offerings.

 

“The inflows into thematic and sectoral funds are known to be cyclical. Investments are generally higher during bull phases, as the strong performance of certain sectors and themes attracts flows. Since most launches also happen during these periods, flows get a further boost,” said Rushabh Desai, founder of Rupee With Rushabh Investment Services. 

 

In 2025 so far, there have been 14 launches in the thematic space, with NFOs collectively raising nearly ₹7,000 crore. In comparison, 52 NFOs in 2024 had raised nearly ₹80,000 crore.

 

The waning interest is also visible on the investor addition front. Net monthly folio additions in sectoral and thematic funds, which peaked at 2.3 million in July 2024, fell to less than a million in May 2025.

 

Abhishek Dev, cofounder and chief executive officer of Epsilon Money, said thematic and sectoral schemes generally take a backseat during periods of equity market volatility, as investor interest shifts to diversified schemes.

 

“Markets have undergone extreme volatility over the past year, with the Nifty 50 swinging between 26,200 and 21,800 within six months. If we look at the data, barring a few big NFOs, net inflows into thematic funds have taken a hit. In the past few months, as markets try to consolidate, investors tend to focus more on mainstream funds,” he said.

 

Diversified equity schemes, especially flexicap funds, have seen a pickup in inflows in recent months, as the market correction prompted investors to take a lower-risk approach.