• 12th April 2021

Is Special Situations Fund an Equity Mutual Fund?

In order to achieve our life’s financial goals, it is essential that we invest with a long term investment horizon. Investing in market linked schemes like mutual funds is essential because not only do they hold the potential to help investors target their life’s monetary goals, but also offer active risk management.A mutual fund is a pool of professionally managed funds that invest in a diversified portfolio of securities for income generation. Depending on the nature of the scheme and its investment objective, a mutual fund may invest across various money market instruments like equity, company stocks, debt, and money market instruments like commercial papers, government securities, corporate bonds, debentures, etc. Mutual fund investors are allotted units in quantum with their investment amount and depending on the fund’s existing NAV (net asset value).

What is a thematic fund? Are they similar to equity funds?

Thematic funds are mutual fund schemes where the fund manager aims at generating capital appreciation by investing in multiple sectors that are woven around a certain theme. They are a type of equity funds that might invest in various themes like multi-sector, international exposure, export-oriented, rural India, etc. Several investors confuse these with sectoral funds and feel that thematic and sectoral funds are one and the same. As per SEBI guidelines, a sectoral fund must invest a minimum of 80 percent of its total assets in a particular sector. A thematic fund, on the other hand, must invest a minimum 80 percent of its total assets (as per SEBI guidelines) in a predetermined theme.

What are some of the features of a thematic fund?

If you are new to investing and want to give your investments a systematic and disciplinary approach, then you can consider starting a SIP in thematic funds. A Systematic Investment Plan is an investment vehicle for investing small amounts at regular intervals instead of making a lump sum investment. Earlier, the only option available for investing in mutual funds was by making a one time lump sum investment. This exposed your entire investment amount to the dangers of equities right from the beginning of the investment cycle. A Systematic Investment Plan on the other hand only exposes the monthly invested amount to market vagaries and not the entire investment amount. Investors can also refer to SIP calculator, a free online tool to determine the approximate corpus one might accumulate at the end of their SIP investment tenure.

Once the investor completes all the initial formalities like KYC documentation and one time mandate with their bank, every month on a fixed date, a predetermined amount is debited from the investor’s savings account and electronically transferred to the fund.Investors can target their life’s long term financial goals by starting a SIP and they can continue investing till their investment objective is achieved.

Another salient feature of a special situations fund is that it gives those sectors an exposure that are otherwise lagging attention of retail investors. Also, investors get an opportunity to invest in certain sectors which they otherwise would not have been able to. Such sectorial investments are known to offer decent capital appreciation over the long term and can turn out to be far more rewarding than conservative schemes.

Mutual fund investments like thematic funds do not offer guaranteed returns. Hence, investors are expected to discuss their financial goals with the fund manager before investing. Mutual fund investments are highly volatile in nature and one can even lose their invested amount if they invest beyond their risk appetite.  This is why it is better to understand your financial goals before investing.

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