Sectoral and Thematic Mutual Funds

A sectoral fund keeps at least 80% in one sector. A thematic fund keeps at least 80% in one theme, which can reach across several sectors.

A mutual fund is a pool of money from many people, invested by a professional manager under SEBI rules. SEBI sorts funds into categories, its labels for what a fund may hold. Sectoral Fund and Thematic Fund are two separate rows in its table of equity categories. Equity means shares of companies.

• A sectoral fund must keep at least 80% in equity of one particular sector. A sector is one part of the economy, such as banking or pharma.
• A thematic fund must keep at least 80% in equity of one particular theme. A theme is an idea that can run across sectors, such as consumption. SEBI's own words: "A theme may be a combination of two or more sectors".

ESG funds form a sub-category of thematic funds. ESG stands for environmental, social and governance. SEBI permits six ESG strategies, and each ESG fund picks one. At least 80% of its AUM must be aligned with that strategy. AUM (assets under management) is the current total value of the money a fund manages.

These rules come from SEBI's circular of 26 February 2026, now carried in its Master Circular of 20 March 2026. Both category names used here are SEBI's own. A scheme, SEBI's word for a fund, must carry its category in its name.

The fund table sorts these funds into 14 groups. The groups are the labels used by our fund data. They are not SEBI categories.

• Sectoral groups: banking, pharma, technology, infrastructure, auto & transportation, and energy.
• Thematic groups: consumption, manufacturing, innovation, MNC (multinational companies), PSU (public sector undertakings), general thematic, and quant.
• ESG, the thematic sub-category described above.

A fund house is the company that runs the funds. SEBI normally allows it only one scheme per category. Sectoral and thematic funds are an exception, as long as each one invests in a different sector or theme. So one fund house may run a banking fund and a pharma fund side by side.

Some funds in these groups may be index funds. An index is a list of companies picked by fixed rules, whose combined value is tracked every day. If a fund in the list is an index fund, SEBI's index fund rule applies to it. That rule is at least 95% in the securities its index is made of.

New launches have one more rule. A new sectoral or thematic fund must pick its sector or theme from a list AMFI publishes every six months. AMFI is the fund industry body.

A sectoral or thematic scheme may overlap by at most 50% with other equity schemes, except large cap. "Other equity schemes" includes other sectoral and thematic schemes.

Portfolio overlap means how much of one fund's holdings are also in another. SEBI counts it share by share. For each share both funds hold, take the smaller of the two weights. Then add them up.

Fund A has 10% in a company and fund B has 6% in it. That company adds 6% to their overlap. Say they also share a second company, at 3% in A and 5% in B. That adds another 3%, so the overlap so far is 9%.

The check runs every quarter. SEBI takes the overlap on each day and averages it across the quarter.

Large cap is the one equity category left out of the comparison. A large cap fund must keep at least 80% in the 100 biggest companies.

Schemes that already exist must meet the limit within three years. A scheme that still fails after that must be merged with other schemes. To get there, a fund house may follow a glide path, a set of yearly steps. The glide path is optional. Its steps apply only to the excess overlap, the part above 50%:

• year 1: cut 35% of the excess;
• year 2: cut another 35%;
• year 3: cut the remaining 30%.

Suppose a scheme overlaps 60%. Its excess is 10 points, so the three steps would be 3.5, 3.5 and 3 points.

The rule compares funds, not your own mix. Before you add one of these funds, it is worth looking at what your other funds already hold.

On SEBI's riskometer, High at best and usually Very High. Nearly every listed sectoral and thematic fund read Very High on 29 September 2026.

The riskometer is the risk label SEBI makes every fund show. Its six levels are Low, Low to Moderate, Moderate, Moderately High, High and Very High. The level is checked every month and can change. If it does, the fund must tell everyone invested in it by email or SMS.

The level comes from a formula that scores each holding. Every share scores at least 5 on company size, on how much its price swings, and on impact cost. Impact cost is how much a share's price moves when a large order to buy or sell it is placed. So a fund full of shares lands at High at best. Concentration and volatility (sharp price swings) usually take these funds up to Very High.

With 80% or more in one sector or theme, the fund's fortunes follow that sector or theme. A bad spell there reaches most of the money.

Here is a made-up example, not a real fall and not a forecast. Suppose ₹1,00,000 sits in one sector and that sector falls 40%. Your money is worth ₹60,000 until it recovers, if it does.

Koshex talks you through sharp market falls before you redeem, which means selling your units back to the fund.

These funds fit a deliberate, concentrated bet placed next to a broad core holding. They do not fit money you will need in the next few years, such as a school fee due in 2028.

A core holding here means a fund that spreads across company sizes. Two examples:

• a flexi cap fund keeps at least 65% in equity, and its manager picks the mix of large, mid and small companies;
• a multi cap fund keeps at least 25% each in large, mid and small companies.

Neither rule ties the fund to one sector.

Whether one suits you, and how much fits, comes down to a few things.

• How long the money can stay. Koshex suggests 7 years or more. That is our suggestion, not a SEBI rule, and it does not promise a recovery in that time.
• What you already hold. Your other funds may already own shares from the same sector. A banking fund then adds more of what you have.
• How big a fall you can sit through. Picture the ₹60,000 from the example above. Ask yourself whether you would stay invested.

Koshex helps you choose a fund that suits your goal and timeline. After that, we review your holdings over time. We flag changes such as a fund's category, risk or ranking shifting.

If the fund keeps at least 65% in shares of Indian listed companies, gains on units held 12 months or less are taxed at 20%. Gains on such a fund's units held longer are taxed at 12.5% above ₹1,25,000 a tax year. That test comes from the Income-tax Act, 2025, in force since 1 April 2026. It is measured as a yearly average of monthly figures.

For a fund that passes the test, the holding period, the time between buying a unit and selling it, decides the rate:

• Short-term capital gain: profit on units sold 12 months or less after buying. Rate: 20%.
• Long-term capital gain: profit on units sold later than that. Rate: 12.5%, charged only above ₹1,25,000.

That ₹1,25,000 is a single yearly allowance, shared across your equity-oriented funds.

Worked examples, with made-up gains. Both assume the fund meets the 65% test and that no surcharge applies. Surcharge is an extra charge on the tax when total income is above ₹50 lakh.

• Units held for 20 months are sold at a gain of ₹2,30,000. It is your only long-term equity gain that tax year. Take away ₹1,25,000 and ₹1,05,000 is taxable. At 12.5% that is ₹13,125. Health and Education Cess, an extra 4% on the tax, adds ₹525. Total: ₹13,650.
• Other units, held 12 months or less, are sold at a gain of ₹42,000. At 20% that is ₹8,400. Cess adds ₹336, so ₹8,736 in all.

When a resident sells units, no TDS (tax deducted at source, before money reaches you) comes off the gain.

IDCW is money the fund pays out from its income or gains. The NAV, the price of one unit, drops by the same amount. You pay tax on it at your slab rate, the rate that applies to the rest of your income. IDCW above ₹10,000 has 10% TDS taken off. That TDS is credited against your tax for the year. If it is more than the tax you owe, the extra is refunded.

This category gives no deduction under section 123 (the old Section 80C).

Line a fund up against others in its own group, not against the whole table. A pharma fund and a technology fund follow different sectors.

Within one group, read:

• Returns. CAGR is the average yearly growth over a period, as if the fund grew at the same pace every year. Across this page, funds averaged 5.2% over 3 years and 11.3% over 5 years. Those figures blend every sector and theme, so use them only as a rough starting line.
• Record. Of the 290 listed funds, 133 have a 3-year record. Those are ranked on 3-year return and counted in the averages.
• Size. Together, the listed funds manage ₹4,84,361 Cr.
• Cost. The expense ratio is the yearly fee, a percentage of your money, taken out of the fund's value.
• Risk. The table shows each fund's riskometer level; compare it within the group.

A SIP invests a fixed sum at regular intervals, usually every month, and each instalment buys units at that day's NAV. A lumpsum is one larger amount invested at once, such as a Diwali bonus.

For tax, each SIP instalment starts its own 12-month clock. Units bought in November 2026 and sold in August 2027 give a short-term gain.

No lock-in applies, meaning no period when selling is barred. Each scheme sets its own exit load, a fee charged if you sell within a set time of buying. After you sell, the fund must pay you within 3 working days.

Koshex offers the regular plan, which you buy through a distributor. A distributor is a registered intermediary that helps you buy and manage funds; Koshex holds AMFI registration ARN-154632.