By rule, thematic funds invest in sectors that match with their focus. So, how come you see an India Infoline Ltd in Sundaram BNP Paribas Rural India Fund, or, say, an ICICI Bank Ltd in ICICI Prudential Infrastructure Fund (IPIF)? The former focuses on rural India, the latter invests in infrastructure.
Can they sway? Yes, they can. Thematic funds, typically, aim to invest at least 65% in their chosen themes. They can also invest in scrips or sectors that they perceive to belong to their theme even though the common perception is otherwise. For instance, IPIF considers that banks drive infrastructure growth (by giving loans) and consider them ancillary scrips. And that’s permissible in their offer document.
What should you do? Read the offer document and check out the fund’s definition of the theme. Invest only if it matches with what you’re looking for. Thereafter, track the fund’s portfolio statements. If you find consistent large-scale diversions, stay away. Thematic funds are risky because they focus on fewer sectors.