Consumption mutual funds offer 14% return in 3 months. Worth a look? (2024)

Consumption sector based mutual funds have offered an average return of around 13.56% in the last three months. Around 15 funds based on this sector have completed three months in the market.

Kotak Consumption Fund, the topper in the category, gave around 18.19% return in the last three months period. Tata India Consumer Fund delivered 16% return in the said period.

Mirae Asset Great Consumer Fund and Baroda BNP Paribas India Consumption Fund gave 15.42% and 14.97% returns respectively in the same period.

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ICICI Prudential FMCG Fund, the oldest fund in the category, offered 11.57% return in the above specified period. The scheme was launched in March 1999 and manages assets under management of Rs 1,612 crore. Aditya Birla Sun Life India GenNext Fund, the largest fund in the category based on assets managed, delivered 12.73% return in the last three months. The scheme manages an asset base of Rs 5,442 crore.

In the last three months, these funds have offered the third highest return across all equity mutual fund categories. What factors have helped these funds deliver this performance?

“The market is currently experiencing a sector rotation, with new investment gravitating more toward consumption-oriented industries that have lagged behind in recent years, particularly in the post-COVID period. In recent months, this has resulted in some outstanding performance in funds focused on consumption. Furthermore, the topic of consumption is currently making a comeback because of the notable run-away in cyclical industries and the values that have risen above their fundamental levels,” said Amar Ranu, Head-Investment Products & Insights, Anand Rathi Shares and Stock Brokers.

In the last one month, only three equity mutual fund categories have offered positive returns and consumption based mutual funds have made their space in the list of top performers.These funds gave the second highest average return of around 1.90% in the last one month period.

ICICI Prudential FMCG Fund offered the highest return of around 5.77% in the same period. HSBC Consumption Fund lost the most of around 0.74% in the said period.

Looking at the recent performance, are you willing to invest in consumption sector based mutual funds? What should be the allocation in these funds?

“Investors should exercise caution when allocating to these groups due to their thematic and sectoral inclinations, since the market may swing against them in unfavorable circ*mstances. The best course of action is to adhere to asset allocation given investors’ risk tolerance and stick to market cap funds such as large caps, diversified equity funds such as multi cap, large & mid cap or flexi cap, mid-caps, and small caps,” recommended Amar Ranu.

He also added, “Investors shouldn't be influenced by sentiments that are developing in any one industry or topic. Additionally, as consumption has expanded beyond FMCG in recent years, the majority of these diversified funds have a sizable exposure to it as a theme.”

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These consumption sector based funds are benchmarked against Nifty India Consumption - TRI, NIFTY FMCG - TRI, BSE Consumer Discretionary Goods & Services - TRI which gave 12.72%, 12.90%, and 13.33% returns respectively in the last three months.

Many mutual fund advisors have been recommending these funds to the investors for investment based on their positive outlook for the sector.

The expert believes that owing to favorable demographics, increased per capita income, digitalization, and easy access to finance in India, consumption will continue to account for a higher portion of investments.

“Owing to favorable demographics, increased per capita income, digitalization, and easy access to finance in India, consumption will continue to account for a higher portion of investments. Long-term consumption is anticipated to rise because of more reforms including the GST, Smart Cities, FDI in retail, JAM Trinity, and UPI,” said Amar Ranu.

He further mentioned, “In addition, due to a number of recent emerging trends, including formalization (increased market share with the shift towards an organized market in sectors like apparel, tiles, textiles, footwear, jewelry, etc.), urbanization (changing work and life styles leading to an increase in demand in sectors like real estate), penetration (vast potential for penetration for categories like online fashion, grocery, quick commerce, etc.), and premiumization (customers upgrading to branded or higher priced offerings like Auto, FMCG, Beauty & Personal Care), consumption has also become a broad theme covering businesses beyond FMCG in recent years.”

Consumption funds are thematic funds that invest in equities of companies that are driven by consumption themes. These funds typically invest in consumer-facing companies that produce goods and services used by consumers. The category consists of different consumption-oriented segments such as FMCG, automobiles, telecom, and consumer durables.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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