In today's dynamic world, businesses are leveraging innovative advancements to drive growth and enhance efficiency. As an investor, you have a unique opportunity to tap into the potential of innovation by aligning your investments with companies that adopt creative strategies. This avenue for expanding wealth is accessible to everyone, thanks to the inclusive and democratised nature of mutual fund investments.

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Exploring the expansive realm of innovation

Innovation encompasses a broad spectrum of breakthroughs that go beyond technology. From fundamental discoveries like zero and the wheel to complex achievements like space tourism and DNA manipulation, innovation has reshaped our society. Throughout history, landmarks such as steam engines, automobiles, computers, and blockchain have highlighted innovation's transformative power.

Understanding the categories of innovation

Innovation can be categorised into three distinct groups: radical, disruptive, and incremental. Radical innovation involves replacing existing products with improved alternatives, as seen with smartphones rendering traditional cameras obsolete. Disruptive innovation brings affordable products and services to a wider audience, exemplified by accessible home appliances like fridges and washing machines. Incremental innovation focuses on enhancing existing products or services, such as the shift from CRT to LED televisions.

Thriving in an innovation-oriented landscape

Companies that prioritise innovation tend to outperform their non-innovative counterparts, experiencing organic growth and generating substantial wealth. Innovation is no longer restricted to large corporations, highlighted by the decline in the median age of the top 10 S&P 500 firms from 85 years in 2000 to 33 years in 2018. This trend is projected to further decrease to just 12 years by 2027. The rise of unicorn start-ups underscores the rapid wealth-generation potential driven by innovation.

Diverse sectors embracing innovation

Innovation has permeated various industries beyond the realm of technology. Sectors such as power, chemicals, pharmaceuticals, healthcare, FMCG, automotive, telecom, industrial automation, and financial services are undergoing significant transformation due to innovation. Airlines, automobiles, banking, retail, and chemicals have all experienced notable improvements in affordability, efficiency, connectivity, and productivity thanks to innovation.

Unleashing the power of innovation

Innovative companies often have the potential to disrupt industries, create new markets, and experience rapid growth. Companies driving innovation are more likely to establish themselves as leaders in their respective sectors. Innovation-driven companies are also adaptable to changing market conditions and consumer preferences. Many innovative technologies and solutions have the potential to drive sustained long-term growth. Additionally, innovations often have a global impact, allowing investors to access a broader range of markets and regions.

The portfolio approach to the innovation theme

Leveraging the power of innovation-driven investing requires the right approach. There are a few investment schemes tailored to this theme due to its specialized nature. Choosing the appropriate investment avenue is crucial for capitalizing on the potential of innovation. Strong innovation-driven funds utilize a bottom-up approach, investing in companies engaged in product, service, or solution-oriented innovation. They remain open to various possibilities, regardless of market capitalization, leaning toward quality and growth investment styles. With an emphasis on above-average growth, minimal debt, asset-light business models, and a culture of innovation, these funds are well-positioned to seize opportunities.

Exploring wealth creation opportunities

Well-managed innovation-driven funds cast a wide net across multiple sectors, embracing the diverse nature of innovation. Whether a company is large-cap, mid-cap, or small-cap, these funds recognize that ground-breaking concepts can arise from anywhere. Some funds employ a unique local-global approach to uncover upcoming themes and opportunities with limited domestic presence. Supported by a robust investment team with a record of identifying and leveraging innovation prospects, these funds are poised to deliver results.

Innovation thriving amidst current trends

Current trends, such as the pandemic, geopolitical shifts, and inflation, create a favourable environment for innovation. The pandemic has highlighted the importance of resilient supply chain management, driving innovation in that area. Geopolitical uncertainties and the desire to reduce dependencies have prompted countries to seek innovative alternatives. Amidst elevated inflation and domestically manufactured products, inventive solutions are expected to flourish. The growth-oriented stance of these funds aligns well with the anticipated normalization of interest rates.

To conclude, embracing innovation is not just a choice; it is an opportunity to unlock doors to wealth generation. By investing in innovative enterprises through innovation based thematic mutual funds, investors can harness innovation's transformative potential across diverse sectors.

Note: This is a partnered post by Sreenath Prabhu, Director, Dhanasree Wealth Financial Services Pvt Ltd. The views and opinions expressed are not that of CNBC-TV18 or its affiliate companies.