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  • **Which Is the Best Innovation Fund? The Data, Trade-Offs, and Hard Truths**

    **Which Is the Best Innovation Fund? The Data, Trade-Offs, and Hard Truths**

    Header image source: Innovation Fund: FAQs on the upcoming first call for proposals – Forest-based Sector Technology Platform (FTP) via Forest-based Sector Technology Platform (FTP) via Google — cropped to 16:9 and colour-adjusted.

    Key takeaways

    • Bandhan Innovation Fund leads India with 19.09% annual returns
    • Fundrise Innovation Fund offers illiquid private tech startup exposure
    • ARKK crashed after interest rate hikes – macro conditions matter

    Bandhan Innovation Fund just posted 19.09% returns over the last year. That’s not just good—it’s the highest among India’s 13 innovation-themed mutual funds.

    The Short-Term Winners: Performance of India’s Innovation Themed Funds

    Here’s the raw data from Value Research’s 13 innovation-themed funds:

    • Bandhan Innovation Direct: 19.09%
    • HDFC Innovation Direct: 16.28%
    • Axis Innovation Direct: 15.57%
    • ICICI Pru Innovation Direct: (return not specified in brief)
    • Baroda BNP Paribas Innovation Direct: 10.62%

    No fund in the category posted negative returns over the last year. Bandhan’s top holdings include technology companies that benefit from enterprise AI adoption.

    And with expense ratios that can be substantial, you’re paying a premium for concentrated exposure.

    Beyond Thematic Funds: The Broader Innovation Fund Universe

    • Allspring Innovation Fund
    • AlphaCentric Robotics and Automation Fund
    • American Beacon ARK Transformative Innovation Fund
    • Berkshire Focus Fund

    The Allspring Innovation Fund, for example, blends innovation themes with broader growth stocks.

    Then there are Fidelity’s growth funds, which are listed among the best mutual funds of 2026:

    • Fidelity Blue Chip Growth (FBGRX): Focused on large growth companies.
    • Fidelity Growth Company Fund (FDGRX): More mid-cap exposure.
    • Fidelity Mega Cap Stock Fund (FGRTX): Focused on established large-cap companies.

    FBGRX, for example, has significant tech exposure but also diversification across other sectors.

    Fundrise Innovation Fund: The Illiquid, Long-Term Play

    Fundrise just launched its Innovation Fund, moving beyond real estate into private tech startups. This isn’t a mutual fund or ETF—it’s a long-term, illiquid bet on private-market growth.

    The strategy? Invest in private tech startups that aren’t yet public. Fundrise targets private companies with high growth potential.

    Fundrise offers repurchase programs, but there’s no guarantee of when they will occur. Right now, there’s zero penalty for liquidating, but that could change. And unlike real estate, private tech assets are less liquid—you can’t just sell a stake in a Series B startup on a whim.

    Fundrise’s Innovation Fund aims to target high-growth tech.

    Costs Matter: Expense Ratios and Hidden Fees

    Here’s a dirty secret: market indexes don’t include expenses.

    Innovation ETFs have varying expense ratios. That’s not negligible—over time, fees can significantly erode your returns.

    Thematic mutual funds like Bandhan Innovation Direct and HDFC Innovation Direct charge expense ratios. At higher expense ratios, you’re paying significant amounts just for the privilege of holding the fund.

    ARKK’s expense ratio might be worth it if its picks outperform, but after significant declines, that’s debatable. Meanwhile, low-cost ETFs include innovation stocks alongside everything else.

    Liquidity vs. Growth: The Core Trade-Off

    Diversification: Thematic Funds vs. Broad Innovation Exposure

    | Fund Type | Diversification | Risk Level | Best For |

    | Thematic (Bandhan, ARKK)| Low | High | Speculative bets | | Broad Growth (FBGRX) | High | Medium | Long-term investors | | ETFs (ARKK, BOTZ) | Medium | Medium | Low-cost exposure | | Fundrise Innovation | Low | High | Illiquid, long-term growth |

    They’re too risky for core holdings. Instead, use ETFs or broad growth funds for innovation exposure, and limit thematic funds to small satellite positions. Thematic funds can juice returns, but they can also destroy them. Treat them like spices—useful in small doses, dangerous in excess.

    The ARK Effect: Lessons from High-Risk Innovation Funds

    ARK Innovation ETF (ARKK) was the poster child for innovation funds—until it wasn’t. It peaked at a high price, then crashed significantly over the next year. Why? Overconcentration in growth stocks.

    Cathie Wood’s thesis was growth at any price. When interest rates rose, discount rates killed valuations, and ARKK’s holdings collapsed. The fund is still down significantly from its peak. That’s not a blip—it’s a permanent loss of capital for anyone who bought at the top.

    The lesson? Even top-performing innovation funds can fail. Their success depends on macro conditions (low interest rates) and narrative momentum (AI, crypto, etc.). When those shift, they crash hard. ARKK’s rise and fall wasn’t about skill—it was about being in the right place at the right time.

    Investors should limit thematic funds to 5-10% of their portfolio. They’re speculative tools, not core holdings. If you’re going to bet on a thematic fund, do it with money you can afford to lose. And don’t mistake a bull market for genius.

    The Final Verdict: How to Pick the "Best" Innovation Fund

    There’s no universal "best" innovation fund—just the one that fits your goals. Here’s how to choose:

    1. For liquidity and low cost:
    • Innovation ETFs (ARKK, BOTZ) or broad growth funds (Fidelity Blue Chip Growth).
    • Why? Daily trading, lower fees, and diversification. These are the default choices for most investors.
    1. For short-term outperformance:
    • Bandhan Innovation Fund (if in India) or Allspring Innovation Fund (U.S.).
    • Why? Highest recent returns, but high risk. These are bets, not investments.
    1. For illiquid, long-term growth:
    • Fundrise Innovation Fund (but only with a 5+ year horizon).
    • Why? Private-market exposure, but no liquidity. This is venture capital for the masses—high reward, but high risk.
    1. For diversification:
    • Avoid pure thematic funds. Opt for ETFs or broad growth funds instead.
    • Why? Thematic funds are too volatile for most investors. Diversification isn’t just a buzzword—it’s risk management.

    The "best" fund is context-dependent. If you’re a long-term investor with high risk tolerance, Fundrise or Bandhan could work. If you need liquidity and diversification, stick to ETFs or Fidelity’s growth funds. And if you’re unsure, start with a low-cost ETF and add thematic exposure later.

    The real question isn’t "Which fund is best? "—it’s "Which fund fits my goals, risk tolerance, and time horizon? " Answer that, and you’ll have your pick. But don’t mistake a fund’s recent performance for a permanent edge. Markets change, trends fade, and yesterday’s winner is often tomorrow’s loser. The only sustainable strategy is one that aligns with your needs—not the fund’s marketing.

    Sources