At the outset itself, one must be forewarned that in theory as well as in practise, thematic and sectoral funds rank high on the Risk scales as there is inherent sectoral concentration risk involved. Before delving deeper into this discussion, it is worth noting that the services sector has also become India’s largest employment provider, accounting for over 17 crore jobs, surpassing even agriculture and manufacturing combined. Government estimates project a 22% increase in employment within this sector by 2028, further underlining its importance in driving both growth and livelihood creation.
So, what is a Services Fund? It is a thematic equity investment that seeks to capture the strong growth potential, diversification benefits, and structural opportunities within India’s rapidly expanding services sector. This fund type invests in businesses that operate across a wide spectrum of services-related industries, offering investors access to sectors that are expected to lead India's economic evolution. The country’s service sector is not just large—it is transformational. It spans a wide range of sunrise industries including health care, finance, information technology, media, telecom, logistics, hospitality, and e-commerce, each with significant long-term relevance and scalability.
Several structural trends are fueling this sector's rise. GST implementation and widespread UPI adoption have significantly regularized and boosted efficiency in industries such as retail, hospitality, and financial services. The Digital India campaign, Aadhaar-based KYC, and fintech infrastructure are accelerating the shift from an unorganized to an organized economy, while changing income distribution is reshaping demand patterns. The proportion of India’s population in the low-income group is expected to decline from 68% in 2010 to 47% by 2035, while middle and upper-middle-income households are on the rise. This demographic shift is catalyzing premium consumption across healthcare, travel, digital content, financial services, and education. Theliberalization of FDI regulations in sectors like insurance, telecom, healthcare, and financial services has encouraged capital inflows. In FY25 alone, the services sector attracted $9.35 billion in FDI, accounting for 19% of total inflows. Government initiatives and tourism infrastructure development are also giving the sector a major push.
A Services Fund typically diversifies across several high-growth segments. These include financial services (BFSI) such as banking, insurance, NBFCs, fintech, and wealth management; IT and ITeS, covering outsourcing, cloud services, cybersecurity, and generative AI solutions; healthcare industries like hospitals, diagnostics, healthtech, and medical tourism; telecommunications, including mobile services, broadband, and 5G infrastructure; consumer services such as hospitality, organized retail, entertainment, and e-commerce; and even power utilities, particularly in areas like distribution, smart energy grids, and renewable infrastructure.
This fund is best suited for long-term investors with a time horizon of five years or more, especially those with an interest in thematic or sectoral investing. It appeals to investors seeking exposure outside traditional sectors, who want to participate in India’s ongoing consumption and digital revolution. The fund also attracts those looking to invest in future-ready, scalable business models operating in some of the most dynamic and resilient parts of the Indian economy.
However, the fact remains that, as discussed at the outset, thematic and sectoral funds carry structural risks that can make their performance volatile. This implies that it is better suited to investors with a higher risk profile who are willing to ride these risks in their satellite portfolio in anticipation of longer term rewards.
(Ashok Kumar is an experienced investor.He can be contacted at ceolotus@hotmail.com)
