Best Thematic Mutual Funds to invest in India 2026

The Indian mutual fund industry has grown from having Assets Under Management (AUM) worth ₹30 lakh crore in December 2020 to over ₹80 lakh crore in December 2025. This growth indicates the rise in participation from the investors. Among this large landscape, there sits a special category known as thematic mutual funds that offers an opportunity for focused portfolio growth. In this blog, we will understand what they are and look at the best thematic mutual funds for 2026.

What are Thematic Mutual Funds?

Thematic mutual funds are a category of mutual funds that focus their investment in specific market themes or trends. They allocate their funds in companies within industries of a particular theme, like MNCs, PSUs, energy, etc. Several smaller themes like commodities, transportation, and services also exist.

The concept behind thematic mutual funds is simple. Some themes or trends perform well over time, and by investing in companies related to this theme, higher returns can be achieved. Thematic mutual funds are more diversified and carry less risk than sectoral funds because instead of focusing on a single industry, they invest across multiple sectors linked by a common theme. This broader exposure helps reduce dependence on the performance of any one sector.

Best Thematic Mutual Funds to invest in India 2026

Some of the best thematic mutual funds you can consider as of January 19, 2026, are:

Fund Name	ICICI Prudential India Opportunities Fund	ICICI Prudential Business Cycle Fund	ICICI Prudential Technology Fund	Tata Digital India Fund	ICICI Prudential Banking and Financial Services Fund
AUM (₹ crore)	34,778	15,958	15,892	12,255	11,153
Expense Rato	0.65	0.75	0.97	0.43	1.00
Risk	Very High	Very High	Very High	Very High	Very High
P/E	20.83	24.64	28.17	28.59	19.33
Standard Deviation	10.86	12.07	17.18	18.52	11.25
Sharpe Ratio	0.74	0.89	-0.35	-0.76	0.95
Sortino Ratio	1.21	1.57	-0.43	-0.89	1.89
Rolling-return % (1-year)	14.05	16.72	-1.16	-8.60	16.78

1. ICICI Prudential India Opportunities Fund
   This fund is the largest in the group with an AUM of ₹34,778 crore, which shows strong investor participation. Its valuation level remains reasonable with a P/E of 20.83. A one-year rolling return of 14.05%, along with a standard deviation of 10.86, points to relatively steady movement compared to other thematic funds.
2. ICICI Prudential Business Cycle Fund
   With ₹15,958 crore under management, this fund follows an approach linked to economic cycles. It carries a slightly higher valuation at a P/E of 24.64, but compensates with better risk-adjusted numbers. A Sharpe ratio of 0.89 and a 16.72% one-year rolling return indicate stronger recent performance among peers.
3. ICICI Prudential Technology Fund
   This fund is more volatile, which is reflected in a higher standard deviation of 17.18. Valuations are on the expensive side with a P/E of 28.17, and recent returns have been under pressure. A –1.16% rolling return and negative Sharpe (–0.35) and Sortino (–0.43) ratios highlight the risks tied to technology-led themes.
4. Tata Digital India Fund
   While the expense ratio is low at 0.43%, the fund remains volatile because of its concentrated digital-sector exposure. Its P/E of 28.59 suggests premium valuations, while a standard deviation of 18.52 signals high volatility. The –8.60% one-year rolling return reflects how sensitive digital themes can be during market corrections.
5. ICICI Prudential Banking and Financial Services Fund
   This fund stands out for its stronger balance between risk and returns. It trades at a lower P/E of 19.33 and reports the highest Sharpe ratio of 0.95 and Sortino ratio of 1.89 in the group. A one-year rolling return of 16.78% suggests relatively consistent performance despite sector-specific exposure.

Who Should Invest in Thematic Mutual Funds?

Thematic mutual funds are ideal for:

• Investors looking to benefit from various growth themes like consumption, infrastructure, or technology in the medium to long term.
• Investors who are more comfortable with volatile markets, as thematic funds move in line with the corresponding sectors.
• Those looking to add diversification beyond traditional equity funds by gaining exposure to focused growth areas.

Factors to Consider Before Investing in a Thematic Mutual Fund

Before you invest in a thematic neutral fund, consider the following factors:

• Theme: Understand the theme the fund is focusing on, its growth potential, and future return.
• Past Performance: The performance of the fund over different market cycles gives an idea of its risk and return.
• Expense Ratio: Funds with lower expense ratios help you retain more of your returns.
• Risk Appetite: Thematic funds are more volatile to market fluctuations due to their concentrated nature. Make sure they fit within your risk tolerance level.
• Fund Manager: Check the fund manager’s past track record and his experience with the particular theme before investing.

Major Advantages of Investing in Thematic Mutual Funds

The major benefits of investing in Thematic Mutual Funds are given below:

1. Growth-focused exposure: Thematic funds provide exposure to high-growth sectors with potential for future returns. Green energy is the buzzword right now, so some of these funds will now be focusing on companies that are directly or indirectly involved with renewable energy sources.
2. Value Alignment: Thematic funds also align with the values and beliefs of the investors. A thematic fund focusing on social causes may attract a particular type of investor having a similar mindset.
3. Diversification: Thematic funds invest in multiple companies following a theme. It reduces the risk arising from any one particular sector or stock.
4. Long-Term Return Potential: Thematic mutual funds concentrate investments in some themes or sectors. If such investment choices continue to perform well, they could potentially perform better than the market and earn high returns.

Risks Involved While Investing in Thematic Mutual Funds

Although there are benefits in thematic funds, these are not investment options suited to all investors. Some of the pitfalls one should watch out for are the following:

1. Volatility: Thematic funds tend to be more volatile compared to other types of diverse investment funds, as they specifically focus on a theme or sector. Such funds are sensitive to market variations, making them inappropriate for conservative investors.
2. Overconcentration: Thematic mutual funds invest in a particular theme or trend related to any sector. Underperformance in the sector may lead to losses.
3. Performance Risk: Although these funds can offer higher returns, there is no guarantee they will outperform the broad market returns. Investing in them requires knowledge and research about the sector.
4. Liquidity: Some portion of a thematic fund may be in small-cap or mid-cap stocks, which can make exiting from a position difficult.

Taxation of Thematic Mutual Funds

Thematic mutual fund taxation is identical to equity mutual fund taxation:

• Short-term Capital Gains Tax: If the holding period is under 12 months, the gains will attract a tax of 20%.
• Long-term Capital Gains: If the units are held for a period of 12 months or more, the first ₹1.25 lakh of gain is tax-free. After that, they attract a tax rate of 12.5%.

Bottomline

Thematic mutual funds focus on specific ideas driving India’s growth. They can deliver strong returns, but price swings are often sharper due to concentration in particular themes or sectors. These funds work better as a supporting investment, not the core. Investors should review the theme’s future outlook, risk level, and investment approach before committing their capital.

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