Thematic investing has been the talk to the town for quite some time. A paradigm shift has taken place in the thought process of investors who not only wish to create wealth but also want to ensure their investments are sustainable. With so much uncertainty and corrections happening around, it is viable for investors to look at options that are more focused and rewarding. This is where thematic investing comes into the picture.
When an investor invests in a combination of stocks that are limited to a domain based on investment thesis or theme and is in accordance with their prediction of the financial future, it is called thematic investing. Such themes predominantly focus on capitalizing from businesses that are emerging and profitable and support the economy. An investor can get a customized theme or choose from the ready made themes already present in the market. Picking up from the already existing themes makes it quite easy for an investor to earn remarkable returns without having to pick and chose the stocks individually.
Here are 5 things an investor needs to know about thematic investing
1. Diversification in thematic investing
A lot of people mistake thematic investing for a conservative kind of investing and believe that diversification cannot be done. This is not true as thematic investing allows investors to diversify within a given domain. For example, if you have chosen the theme as IT for investments then you can diversify your portfolio within the same theme and to some extent within companies related to the IT sector.
2. Construction of the theme
The themes are constructed in such a way that they can outperform the benchmark returns of equity funds and stay independent of the economic cycles. The benefit which investors earn will get reflected in the long run as the structural trends will work predominantly in favor.
3. Diversification across themes
Investors who bank majorly on diversified portfolios must consider investing across various themes. By doing so they can have a fair share of investments across the market and will enable them to achieve optimal diversification level without trimming the returns.
4. Customization of portfolio
Apart from diversification, thematic investing allows investors to customize their portfolio as per their need and choice. Such kind of professional customization is not available in conventional investing methods like diversified equity mutual funds and NIFTY stocks.
5. Ready made themes
Although there is a provision for customization of themes, choosing one from the already existing themes cuts short the effort and eliminated confusion. Thematic investing is a powerful tool that enables investors to put in their thought of conviction to their investment portfolio.
Making money using thematic investing
The basic purpose or goal of all types of investing is Capital preservation and capital generation by selling high and buying low. This trend can be seen in most of the types of investing like value investing, swing trading etc, thematic investing allows you to do just so by eliminating the need to do research and timing the market. Where a regular diversified portfolio can fetch you returns which are standard, a theme-based portfolio can work wonders in generating capital that too in a comparatively shorter amount of time.