After a lull, consumption-focused mutual funds are back in action, rewarding investors with over 25 percent returns in the last one year alone. The sector gauge, Nifty India Consumption Index has also gained around 17 percent in the same period. With the Indian economy looking set for the next level of growth, analysts are expecting the momentum in these funds to continue. But should you invest in them?
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Before considering investing in consumption-focused funds, investors must not forget that these are high-risk reward funds.
What are consumption-focused funds?
Consumption funds are types of thematic mutual funds that invest in equities of companies that are driven by consumption behavior in India. Aditya Birla SL India GenNext Fund, Baroda BNP Paribas India Consumption Fund, and Canara Robecco Consumer Trends Fund are some examples of consumption funds.
How have they performed recently?
The mutual fund industry has 12 dedicated consumption funds under the subcategory, with total Assets Under Management (AUM) at Rs 13,430 crore as of July 2022. This AUM has seen an increase of 5.5 percent since the beginning of the current financial year in April 2022 and a whopping 51 percent increase since March 2021 (AUM of Rs 8,905 crore), said Gopal Kavalireddi, Head of Research, FYERS told CNBC-TV18.com.
Most of these 12 consumption funds delivered good returns on various time periods—5.5 percent over a 1-month period, 13.5 percent over a 3-month period, and 12.7 percent over a 6-month period. Nippon India Consumption fund, ICICI Pru Consumption fund and SBI Consumption Opportunities fund have been some of the top performing funds in this category, Kavalireddi said.
Here are the absolute returns offered by some of the top consumption funds over a period of 1 year:
| Funds | 1 year return (%) | Expense Ratio (%) | Launch | Net Assets (Cr) |
| Aditya Birla Sun Life India GenNext Fund - Direct Plan | 10.39 | 1.03 | 2013-01-01 | 2,894 |
| Axis NIFTY India Consumption ETF | -- | 0.33 | 2021-09-17 | 13.00 |
| Baroda BNP Paribas India Consumption Fund - Direct Plan | 11.66 | 0.81 | 2018-09-07 | 920.00 |
| Canara Robeco Consumer Trends Fund - Direct Plan | 12.90 | 1.03 | 2013-01-02 | 868.00 |
| ICICI Prudential Bharat Consumption Fund - Direct Plan | 21.91 | 1.25 | 2019-04-12 | 1,736 |
| ICICI Prudential Nifty India Consumption ETF | -- | 0.20 | 2021-10-29 | 13.00 |
| Kotak NIFTY India Consumption ETF | -- | -- | 2022-07-28 | 5.00 |
| Mirae Asset Great Consumer Fund - Direct Plan | 13.44 | 0.56 | 2013-01-01 | 1,851 |
| Nippon India Consumption Fund - Direct Plan | 19.03 | 1.29 | 2013-01-01 | 222.00 |
| Nippon India ETF Nifty India Consumption | 17.91 | 0.31 | 2014-04-03 | 36.00 |
| SBI Consumption Opportunities Fund - Direct Plan | 25.86 | 1.32 | 2013-01-01 | 997.00 |
| SBI Nifty Consumption ETF | 17.87 | 0.30 | 2021-07-22 | 11.00 |
| Sundaram Rural and Consumption Fund - Direct Plan | 13.49 | 1.27 | 2013-01-01 | 1,206 |
| Tata India Consumer Fund - Direct Plan | 12.19 | 0.91 | 2015-12-28 | 1,373 |
| UTI India Consumer Fund - Direct Plan | 10.19 | 2.03 | 2013-01-01 | 430.00 |
(Source: Value Research)
Investing in consumption funds and strategy?
With price hikes remaining sticky, Kavalireddi said that this will bode well for investors seeking a defensive play in the markets as well as in securing good returns.
However, it’s imperative to note that these are thematic funds and their concentration is on a particular segment. So, they come with high risk.
Concurring with FYERS Kavalireddi, Clear — an investment and tax filing platform — said that these funds are apt for aggressive investors with a higher appetite for risk.
"They are expected to do well when the consumption is high, and the economy is doing well. There is no doubt that investors are going to benefit from these funds when the underlying sector is doing well. But, it is also important to note that the losses can be magnified when the sector is not performing as expected," Clear said.
Moreover, investors must keep a horizon of longer than five years to mitigate the associated risks to a greater extent, Clear said.
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