Over the five years to 30 September 2026, 38 of the 39 Indian thematic funds in this study (ESG, manufacturing, infrastructure, transport and consumption, with five years of history) beat a Nifty 50 index fund, and 29 beat the median flexi cap fund. ESG funds were the exception: only one of eight beat the median flexi cap.
That is a strong five years, not a permanent law. Over rolling five-year periods going back to 2014, infrastructure funds beat the Nifty 500 index only about half the time, and the gap between the best and worst fund within one theme was often bigger than the gap between themes. This guide shows the numbers, how they were selected, and what they mean if you are thinking of buying one.
What is a thematic fund?
A thematic fund must keep at least 80% of its money in stocks that fit a stated theme, under SEBI's scheme categorisation rules. A theme can span several sectors: a manufacturing fund can hold carmakers, capital goods, chemicals and metals; an ESG fund can hold banks and IT companies that pass its screens. A sector fund, by contrast, sticks to one industry such as banking or pharma. Our guide to sector funds covers those.
SEBI's circular of 26 February 2026 tightened the category. A thematic fund's portfolio can overlap at most 50% with the AMC's other equity schemes (large-cap holdings excluded), existing funds get three years to comply, and new thematic funds can only launch on themes from a list AMFI publishes every six months. ESG funds must follow one of SEBI's named ESG strategies, such as exclusion, integration or best-in-class.
Which thematic funds exist in 2026?
- ESG: SBI ESG Exclusionary Strategy, ICICI Prudential ESG Exclusionary Strategy, Kotak ESG Exclusionary Strategy, Aditya Birla Sun Life ESG Integration Strategy, Axis and Invesco ESG Integration Strategy, Quantum ESG Best In Class Strategy, and the passive Mirae Asset Nifty 100 ESG Sector Leaders Fund of Fund.
- Manufacturing: ICICI Prudential Manufacturing, Kotak Manufacture in India, HDFC Manufacturing, Aditya Birla Sun Life Manufacturing Equity, and newer funds from Axis, Canara Robeco, Baroda BNP Paribas, Invesco, Mahindra Manulife, LIC MF and quant.
- EV, auto and transport: there is no pure EV fund. The closest are Transportation & Logistics funds (UTI, ICICI Prudential, HDFC, Kotak, Bandhan, Aditya Birla Sun Life) and SBI Automotive Opportunities.
- Infrastructure: the oldest theme, with 20 funds including ICICI Prudential, DSP India T.I.G.E.R., Nippon India Power & Infra, HDFC, Franklin Build India and SBI.
- Consumption: Mirae Asset Great Consumer, SBI Consumption Opportunities, Tata India Consumer, ICICI Prudential Bharat Consumption and others.
- Defence: HDFC Defence Fund, launched in June 2023, was the first active defence fund; index funds and FoFs followed in 2024–2026.
Business cycle funds are also thematic, but they rotate between sectors rather than holding one theme; see our business cycle funds guide.
What is a manufacturing fund?
A manufacturing fund is a thematic equity fund that keeps at least 80% of its money in companies that make things: carmakers and auto parts, capital goods, pharma, metals, chemicals, oil and gas, and consumer durables. Banks and IT services companies are outside the theme, which is the main difference from a flexi cap fund.
The Nifty India Manufacturing Index shows what the theme looks like. On 30 September 2026 it had 77 stocks: automobiles and auto components 25.3%, capital goods 23.2%, healthcare 18.5%, metals and mining 14.7%, oil and gas 7.6%, chemicals 6.2% and consumer durables 3.6%. Its largest holdings were Mahindra & Mahindra, Reliance Industries, Sun Pharma, Maruti Suzuki and Tata Steel, with no stock allowed above 5%. Active funds choose their own stocks, so read the latest factsheet rather than assuming one matches the index.
Active funds on this theme include ICICI Prudential Manufacturing Fund, HDFC Manufacturing Fund, Kotak Manufacture In India Fund, Axis India Manufacturing Fund and Canara Robeco Manufacturing Fund. To own the index itself, there are passive options such as UTI Nifty India Manufacturing Index Fund, Navi Nifty India Manufacturing Index Fund, Nippon India Nifty India Manufacturing ETF and Mirae Asset Nifty India Manufacturing ETF.
How the funds were chosen
To avoid picking winners after the fact, the rule was mechanical. I took every Direct Growth plan in AMFI's sectoral/thematic categories whose name puts it in one of these themes: ESG, manufacturing, transport/automotive, infrastructure, consumption or defence. Of 74 such funds, 39 had NAVs going back at least five years from 30 September 2026. The other 35, including HDFC Defence Fund and most manufacturing and transport funds, launched later.
Returns are annualised, NAV to NAV, from AMFI's NAV history, so they are after the fund's expenses but before tax. The comparisons are UTI Nifty 50 Index Fund (Direct Growth), the median of the 27 flexi cap funds with five years of history, and the Nifty 500 Total Return Index, which has no costs at all. One limitation: funds that were merged or closed before 2026 aren't in AMFI's current list, which flatters any category a little.
What the numbers show: 3- and 5-year returns to September 2026
| Theme | Funds with 5Y history | Median 3Y return | Median 5Y return | 5Y range | Beat median flexi cap over 5Y |
|---|---|---|---|---|---|
| Infrastructure | 17 | 15.9% | 17.5% | 9.6% to 21.7% | 16 of 17 |
| Manufacturing | 3 | 20.7% | 18.4% | 15.0% to 20.9% | 3 of 3 |
| Transport & logistics | 1 | 17.2% | 19.1% | n/a | 1 of 1 |
| Consumption | 10 | 8.7% | 10.8% | 7.8% to 12.9% | 8 of 10 |
| ESG | 8 | 8.1% | 6.8% | 5.0% to 17.5% | 1 of 8 |
| All 39 thematic funds | 39 | 12.1% | 14.9% | 5.0% to 21.7% | 29 of 39 |
| UTI Nifty 50 Index Fund | n/a | 5.8% | 6.1% | n/a | n/a |
| Median flexi cap fund (27 funds) | n/a | 10.6% | 10.1% | n/a | n/a |
| Nifty 500 TRI (no costs) | n/a | 9.5% | 9.1% | n/a | n/a |
Direct Growth plans, annualised NAV returns to 30 September 2026, from AMFI NAV history. The single transport fund is UTI Transportation and Logistics; the ESG maximum is quant ESG Integration Strategy. FinPlann calculation.
Three things stand out. First, this was an unusually good five years for capex and manufacturing themes, and an unusually weak one for the Nifty 50, which returned about 6% a year. Most thematic funds hold more mid- and small-cap stocks than the Nifty 50 does, so part of their lead is simply that smaller companies did better. Against the broader Nifty 500 index, 31 of the 39 still came out ahead.
Second, ESG funds lagged. Seven of eight trailed the median flexi cap and six of eight trailed the Nifty 500 index. An ESG screen is a values choice; this data gives no sign that it adds return.
Third, the spread within a theme is wide. Among infrastructure funds the five-year return ran from 9.6% to 21.7% a year. Picking the theme correctly was only half the decision.
Do thematic funds hold up over longer periods?
A single five-year window can mislead, so I also measured every rolling five-year period that started at a month-end between January 2014 and September 2021 (93 windows, the last ending in September 2026). For each fund, I counted how often it beat the Nifty 50 index fund and the Nifty 500 TRI over the same five years.
| Theme | Fund-windows measured | Beat Nifty 50 index fund | Beat Nifty 500 TRI |
|---|---|---|---|
| Consumption | 786 | 80% | 67% |
| Manufacturing | 210 | 67% | 60% |
| Infrastructure | 1,566 | 55% | 54% |
| Transport & logistics | 93 | 44% | 41% |
| ESG | 190 | 66% | 28% |
Each fund counts only for windows it existed for. Most ESG and manufacturing funds are young, so their rows lean on one or two older funds. FinPlann calculation from AMFI NAVs and NSE Indices TRI data.
Over the long run, infrastructure was close to a coin toss against the broad market. Consumption funds did better, beating the Nifty 500 in about two-thirds of windows. Nothing here supports the claim that thematic funds as a group reliably beat, or reliably trail, a diversified portfolio.
HDFC Infrastructure Fund shows how much timing matters. Its five-year return to September 2026 was 18.4% a year. But across all 93 rolling windows its median five-year return was 6.3% a year, against 13.5% for the Nifty 50 index fund, and it trailed the index fund in 55 of them. Someone who bought in 2014–2016 had a very different experience from someone who bought in 2021.
What did the newer launches do?
A common worry is that thematic funds launch when a theme is already expensive. In this cycle that didn't hurt much: of the 29 theme funds launched between October 2021 and September 2025, 26 have beaten the Nifty 50 index fund and 24 the Nifty 500 TRI from their first NAV to 30 September 2026. HDFC Defence Fund returned about 40% a year from June 2023. These are short records, mostly from one strong stretch, so treat them as a description of the past three years rather than evidence about the next ten.
The risks behind the returns
Volatility is higher. Measured on month-end NAVs over the five years to September 2026, the median infrastructure fund's annualised volatility was 17.7%, against 13.4% for the Nifty 50 index fund and 14.6% for the median flexi cap. Single-sector funds ran at about 17–24% between 2016 and 2026.
Costs are higher. Direct-plan expense ratios for thematic funds were typically about 0.8–1.5% a year in September 2026, against about 0.7–1.1% for flexi caps. A 0.5-point extra cost trims about 4.9% off what you'd have after 10 years.
A ₹1 lakh example. Invested on 30 September 2021, ₹1 lakh would have grown to about ₹2.67 lakh in the best infrastructure fund, ₹2.24 lakh in the median one and ₹1.58 lakh in the worst, against ₹1.35 lakh in the Nifty 50 index fund and ₹1.62 lakh in the median flexi cap (illustrative, using the computed returns above, before tax). The theme paid off, but which fund you held moved the result by more than a lakh.
When a thematic fund makes sense
- You already have a diversified core. A theme concentrates risk; it shouldn't be your first or only equity fund. I'd keep any single theme to a small slice of your equity.
- You have a reason beyond recent returns. Five strong years are the most common reason people buy and the weakest reason to expect five more.
- You can hold through a bad stretch. The rolling-window data shows themes going out of favour for years at a time.
- You've checked the overlap. A manufacturing fund can duplicate much of what your flexi cap or mid cap fund already owns.
How to check a thematic fund before you buy
- Compare its five-year return with a flexi cap and the Nifty 500 TRI as well as with other funds on the same theme.
- Look at rolling returns as well as the latest trailing figure. The mutual fund analyser shows how a fund has done over different periods.
- Read the latest portfolio: the top 10 stocks and top three sectors as a share of the fund.
- Check the expense ratio against a flexi cap's.
- Check how long the current fund manager has run it.
- Run your existing funds and the new one through the mutual fund analyser to see the overlap.
How thematic funds are taxed (tax year 2026-27)
A thematic fund with at least 65% in Indian equities is taxed like any equity fund. Gains on units held over 12 months are taxed at 12.5% above ₹1.25 lakh a year; gains within 12 months at 20%. International thematic funds and funds of funds that invest abroad are different: for units sold from 1 April 2025, gains within 24 months are taxed at your slab rate, and gains after 24 months at 12.5%. Check the scheme document before assuming equity tax treatment.