How can thematic index mutual funds add value to your portfolio?
A passive construct makes them true to label with 100% exposure to the stated theme/sector unlike active thematic funds where 20% can be invested outside the theme as per SEBI guidelines - a provision that active funds use extensively.
Index funds are slowly gaining traction in India and other emerging markets because of their simplicity and low-cost structure. These funds passively invest in the constituents of the benchmark index with an aim to mirror its performance. Index funds simply duplicate the exposure provided by the benchmark index by buying the same securities and in the same proportion as in the index. They do not focus on outperforming the benchmark index. On the contrary, their main aim is to track the performance of the underlying index and generate similar returns.