Thematic investing is an excellent approach for earning regular returns. The best-performing sectors in the market change regularly, and thematic investing allows you to extract maximum benefits. While there are several ways to maximize changing trends in the market, thematic Exchange Traded Funds (ETFs) allow you to invest in several themes together.
Types of ETFs
Before getting into thematic ETFs, let us recap the various types of ETFs available in the market.
- Equity ETFs
- Equity ETFs are traded in the market during regular trading hours. Their prices are determined by the market and keep changing continuously.
- There is no cap on the minimum investment amount required to invest in an equity ETF. The minimum investment quantum is one unit.
- Equity ETFs generally have a low expense ratio.
- Debt ETFs
- Debt ETFs help customers receive exposure to fixed-income instruments such as debentures and government bonds with different maturities.
- Debt ETFs, too, do not have any cap on the minimum investment amount and the minimum investment quantum is one unit.
- Debt ETFs are low cost, help in diversifying your portfolio, and offer quick liquidity.
- Commodity ETFs
- A popular category of commodity ETFs is gold ETFs. Every unit of gold in the ETF that you buy is equal to 1/100th of one gram of gold.
- Gold ETFs are purchased and sold directly on stock exchanges like other types of ETFs. The purity of a gold ETF is 99.5%
- Comodity ETFs are highly liquid and can be bought and sold on stock exchanges like equities.
- Thematic ETFs
- A thematic ETF replicates the performance of a particular sector in the Indian market. This could be information technology (IT), banking, or infrastructure. Thematic ETFs, similar to sectoral mutual funds, track a specific sector in the market.
- The only difference between a thematic ETF and a sectoral mutual fund is that the former trades on the stock market.
What are the benefits of opting for thematic ETFs?
- By investing in thematic ETFs, you can invest in specific themes or market domains such as infrastructure, clean energy, fast-moving consumer goods (FMCG), information technology, etc.
- Opting for a thematic ETF is an effective strategy to diversify your investment portfolio.
- Thematic ETFs generally have a long-term focus, allowing them to overcome market volatility while generating returns for investors.
- As an investor invested in a thematic ETF, you can gain access to a range of high-growth companies in a specific sector of your choice.
Thematic Exchange traded funds, like the IT ETF, is a commodity ETFs and can be rewarding to investors unfazed by market volatility and keen on exploring different sectors. With Exchange Traded Funds, investors can invest in multiple themes together and maximise their returns.
