What is Thematic PMS?

What is Thematic PMS?

Portfoliomanagement service (PMS) is an ideal option for long-term wealth creation &capital gains. If you have a substantial amount to invest, you can considerPMS.

Typically,it is directed towards HNIs and NRIs. The minimum amount of PMS starts at 50lakhs. What makes it stand out from other investments is its customizationfeature. PMS can be fully cutsomised, fund managers can create a PMS portfoliobased on risk appetite & time horizon.

Types of Portfolio Management Services:

Asan investor, you can choose from three main types of portfolio managementservices - discretionary, non-discretionary, and advisory. If you choosediscretionary service, the fund manager makes all the management decisions onyour behalf, even if you’re unavailable. This setup is best suited for NRIs whohave time constraints.

Ifyou opt for non-discretionary PMS, the fund manager will seek your approvalbefore trading or investing money. Fund managers will research stocks &funds that may give good returns and suggest that you invest in those.

AdvisoryPMS is akin to receiving advice from a fund manager or PMS company. Investorswith a sound knowledge often choose this PMS for further guidance on trading.

Withtypes, it's also essential to be aware of different PMS strategies. Today,we’ll discuss Thematic PMS.

What is Thematic PMS?

ThematicPMS combines the concept of thematic investing with a primary focus onmarket-specific trends such as renewable energy & digital transformation.

Ofcourse, this is combined with personliased management of PMS. If you choosethematic PMS, a professional fund manager will handle your portfolio based onyour goals.

ThePMS strategy offers cutsomised exposure to many high-growth themes, unlikeindividual stocks & mutual funds. The best part is that it is an activelymanaged strategy for those who are seeking concentrated growth from aparticular economic idea.

Key Features of Thematic PMS:

Thematic-focused & Customization

Investmentsare not limited to a single sector, but they span multiple sectors that supporta specified theme. For example, if the fund manager chooses an urbandevelopment theme, it may include financial stocks, real estate, cement, etc.

As aresult, thematic investments follow a specific theme for good returns. Beingspecific, the PMS also follows customization. Meaning, it offers completeflexibility to align with your risk tolerance and growth narratives. This isunlike off-the-shelf mutual fund investments. Thematic-focused PMS is ideal forinvestors who are eyeing long-term capital gains.

Top-down Approach & Concentrated Portfolio Strategy

ThematicPMS follows a long-term structural trend that is expected to outperform, ratherthan picking different individual stocks. A fund manager who is adept at PMSstrategy follows this approach to the T.

Unlikediversified equity funds, thematic PMS holds a focused & limited set ofstocks, i.e., 15 to 20 stocks, which directly align with the chosen thematictheme. Of course, as an investor, you can have your say in choosing a theme. Aconcentrated portfolio strategy also helps to mitigate market risks.

Growth Potential & Higher Risk

Ifyou invest in thematic PMS, it aims to capitalize on emerging market trends orlong-term structural shifts, leading to higher returns if the theme performswell. For example, if there is a growth in real estate stocks, it will directlyimpact your thematic portfolio returns.

Concentratedbets on the theme also increase risks, as poor performance of the theme canimpact the portfolio.

Long-term Horizon

ThematicPMS strategies are typically designed for three years or seven years.Therefore, you need to have patience as an investor, as the themes often taketime to materialize. In some cases, it could also take longer than seven years.

Examples of Thematic PMS Themes:

Mostinvestors place their bets on the manufacturing & infrastructure sector.Even PMS companies and fund managers suggest sectors with higher growthpotential.

Ifthe growth potential is high, the returns will be good. Apart from this, fundmanagers focus on ESG (environmental, social, and governance standards). Ofcourse, investors are well-informed today, so they know sustainability isimportant for investments and growth.

Mostinvestors place their bets on digital transformation and AI. It's nowuniversally known that the AI sector will see an upward trajectory in thecoming years. Notably, most PMS companies also focus on demographic shifts tosustain in the long term.

Benefits of Thematic PMS:

Diversification

Thematic schemes are concentrated on specific areas, but theystill offer better diversification. If you compare diversification with mutualfunds, naturally, thematic PMS offer better returns.

For example, if you choose a healthcare scheme theme in thethematic PMS, it will further invest in the pharma sector, medical devices, andother health care services.

So, when the sector diversifies, it will have an impact on yourportfolio as well. If you choose a thematic portfolio, you can expect betterreturns because of diversification and concentration of the sector.

Emerging Trends

Experienced investors are well aware that thematic schemes canhelp to capitalize on emerging trends. Fund managers are often vary when itcomes to emerging trends & stocks.

Of course, some traditional investors don't like to invest innew stocks; they choose stocks that have already performed better in the past.Thematic schemes allow investors to place their bets on new and emergingsectors such as AI and technology.

As these technologies are growing at a rapid scale, the benefitof which will be passed on to the investor. Actually, this is a better optionfor investors who are ready to take the risk of investing in emerging trends.

Potential for Better Returns

PMS investments are focused as they follow a focused investmentstrategy. Of course, these funds concentrate on sectors and asset classes,which is why the concentration is high.

Due to this, they have the potential to offer higher returns oninvestment. For a first-time investor investing in PMS, this could be an idealchoice.

If you want good returns on investment, then thematic PMS is anideal choice. However, it's also important to note that some may come with ahigher risk. Risk is a part of PMS investment, so you need to stay aware.

Risks & Considerations of Thematic PMS

Market volatility is a risk that every investor should know.Thematic funds are subject to market volatility, and the performance of thefunds is based on many economic and regulatory changes.

An economic downturn will directly affect the fund'sperformance. That said, PMS companies or fund managers use different riskmitigation strategies to keep the investments on track.

Failing to understand the theme & its potential can harm theinvestors in the long run. If you are new to thematic PMS, take time tounderstand how it works and what returns to expect. Failing to understand thetheme can lead to suboptimal investment decisions. You don't want that tohappen, right?

PMS companies or fund managers are well-versed in how thematicPMS works. But it's important to play your part as an investor. Meaning, beforeyou invest in funds or diversify your portfolio, you must have a soundknowledge of it. For this, it's essential to evaluate the fund's pastperformance, the fund manager's expertise, and potential risks that couldimpact returns.

How To Invest in Thematic PMS?

As an investor, you need to set your investment goals to investin thematic PMS. This will help you choose thematic funds that align with yourfinancial objectives. Conduct in-depth research, so you can identify the rightthematic funds.

Though you can take help from fund managers or a PMS company forfund selection. Of course, they have better expertise in the market and cansuggest the best options for thematic PMS.

However, when you choose thematic funds, consider the risksassociated with them. If it's for long-term investment or wealth creation, thenyou will need to assess risks and return ratios.

Accessing the risk tolerance of thematic funds is important asthese funds are more volatile than traditional PMS funds or mutual funds. Ifthere is any potential market fluctuation, you must stay prepared to face it.

It's also important to consult a financial advisor or fundmanager before you narrow down on funds. If you are an experienced PMSinvestor, you can gauge the difference between the distinct options available.

But if you are a first-time investor, you will need guidance& support. The fund manager will help you with creating a thematicportfolio with the best options available. Afterall, customization is thebiggest advantage of this fund. Personalized advice about finance andinvestments can make a considerable difference in your approach.

Conclusion

Ifyou choose Thematic PMS, the fund manager will identify a compelling theme tostart with. After which, they pick stocks from distinct sectors that may fitthe chosen theme of the course, conducting in-depth research. As such, the PMSmanager actively adopts the portfolio and looks into changes based on markettrends.

Youcan choose thematic PMS if you have a higher risk appetite and - if you believein long-term social trends. Also, you need to be patient with the lock-inperiod of thematic investment. Lastly, choose this PMS if you want exposurebeyond the traditional funds.