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Should you invest in Innovation Mutual Funds?
Imagine if you had the chance to invest in Netflix in 2010 or Tesla in 2012. Where would you be today?
These are the kinds of opportunities that Innovation Funds aim to capture—funds that invest in today’s disruptive startups and tomorrow’s potential giant companies.
From digital payments to artificial intelligence, innovation funds allow investors to participate in companies reshaping entire industries. But are they truly the future multibaggers, or just a high-risk roller coaster that could wipe out your money?
In this article, we decode everything about innovation funds—what they are, how they differ from traditional mutual funds, their risks, and the top three innovation funds by AUM.
What Are Innovation Funds?
In simple words, innovation funds invest in companies that are rewriting the game. These companies work on new ideas, breakthrough technologies, or business models that can disrupt industries.
Innovation can happen at three levels:
1. Product or Service Innovation
Companies developing cutting-edge gadgets or using AI to deliver smarter services.
2. Operations Innovation
Unique systems to reduce costs, improve processes, or enhance customer experience.
3. Business Model Innovation
Like how Netflix transformed from DVD rentals to a global streaming powerhouse.
Innovation isn’t limited to startups. Large, established companies also invest heavily in futuristic technologies. This is why innovation funds often hold a mix of large-cap, mid-cap, and small-cap stocks.
Innovation Funds vs Traditional Mutual Funds.
Think of a traditional fund—like a Nifty 50 index fund—as a ready-to-move-in house in a posh, well-developed locality. Everything is stable, predictable, and low-risk.
An innovation fund, on the other hand, is like buying land in a futuristic smart city that exists only on a blueprint.
The builder promises flying cars, hyperloop stations, and AI-driven services. If the plan works, your property value may explode. If it fails, your money goes down with the dream.
Traditional funds = Today’s reality
Innovation funds = Tomorrow’s potential
Top 3 Innovation Funds in India (By AUM).
As of today, the category includes 12 innovation funds, none of which existed six years ago. Let’s dive into the top three.
1. ICICI Prudential Innovation Fund – Direct Growth.
Launch Date: 28 April 2023
AUM (30 Sept 2025): ₹713.19 Cr
Fund Manager: Vaibhav Dusad
Top Holdings
ICICI Bank
Bharti Airtel
Infosys
Reliance Industries
Axis Bank
Top Sectors
Financial Services
Automobiles & Auto Components
Healthcare
IT
Capital Goods
Key Insights
Outperformed both benchmark and category in the last one year.
Portfolio turnover ratio: 1.1 (high activity).
53 stocks in the portfolio; top 10 contribute 33% (balanced stock diversification).
Top 3 sectors = 55.5% exposure, showing sector-level bias.
2. SBI Innovative Opportunities Fund – Direct Growth.
Launch Date: 20 August 2024
AUM (30 Sept 2025): ₹6,853.75 Cr
Fund Manager: Vivek Gida
Top Holdings
Eternal LED
Black Buck Ltd
TBO Tek
Divi’s Laboratories
FS E-commerce Ventures
Top Sectors
Consumer Services
Healthcare
Services
Automobiles & Components
Financial Services
Key Insights
Has not beaten the benchmark or category in the last one year.
Turnover ratio: 7 (very high trading activity).
37 stocks with top 10 forming 50%+ of the portfolio (high concentration).
Top 3 sectors = 67.44% exposure, making it riskier.
3. Kotak Pioneer Fund – Direct Growth.
Launch Date: 31 October 2019
AUM (30 Sept 2025): ₹3,148.08 Cr
Fund Manager: Harish Bihani
Top Holdings
Eternal LED
Aster DM Healthcare
Bexco Ltd
InterGlobe Aviation
UNO
Top Sectors
Overseas Mutual Fund Units
Retailing
Healthcare Services
Auto Components
Automobiles
Risk & Performance Metrics
Standard Deviation: 12.99% (slightly more volatile than category)
Beta: 0.85 (less volatile than benchmark)
Sharpe Ratio: 1.29 (strong risk-adjusted returns)
Sortino Ratio: 1.55 (high downside risk protection)
Turnover Ratio: 19.85% (buy-and-hold strategy)
Diversification
46 stocks, top 10 form ~32% → better diversification than others.
Top 3 sectors = 42% exposure → balanced sector allocation.
Portfolio Comparison of the Top 3 Innovation Funds.
Portfolio Overlap: Very low → each fund follows a unique strategy.
Market Cap Mix:
ICICI: Large-cap heavy
Kotak: Mix of Indian + Global exposure
SBI: Highest small-cap allocation (riskier)
Concentration:
SBI is most concentrated
Kotak is most diversified
Should You Invest in Innovation Funds?
The answer depends on your:
Risk appetite
Investment horizon
Financial goals
Best suited for:
Investors who can tolerate high volatility
Those with 7–10+ years of investment horizon
People building a satellite portfolio, not core portfolio
Innovation funds should not replace your core holdings (like index funds or diversified equity funds).
They are optional enhancers—not essentials.
Final Thoughts.
Innovation funds offer exciting opportunities but come with equally high risks.
If you’re a long-term investor who believes in future technologies and can stomach short-term volatility, these funds may be worth considering.
Always perform your own research before investing.
Mutual fund investments are subject to market risks—read all scheme documents carefully.
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