Looking for investment with strategic asset selection? These mutual funds offer 14% return in 3 months

Mutual funds based on the consumption sector offered an average return of around 13.73% in three months – the third highest among all equity mutual categories. Around 15 consumption funds have completed three months of existence in the market.

Kotak Consumption Fund, the topper in the category, offered 17.97% return in the last three month duration. Tata India Consumer Fund delivered 16.90% in the same period.

Quant Consumption Fund gave the lowest return of around 10.42% in the said period. ICICI Pru FMCG Fund, the oldest fund in the category, posted a 12.15% return in the mentioned period. Aditya Birla SL India GenNext Fund, the largest fund in the category based on assets managed, gave 12.79% return in the last three month period.

According to an expert, this performance by consumption funds in the last three months is attributed to several factors.

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“One of the primary drivers was a favorable economic environment marked by steady employment growth and stabilizing inflation. This combination led to an increase in consumer spending, creating a supportive backdrop for consumption-focused investments. The strong consumer market and the resilience of these funds in capturing growth opportunities played a significant role in their recent success,” said Chakrivardhan Kuppala, Cofounder and Executive Director, Prime Wealth Finserv.He also mentioned that the stellar performance by Kotak Consumption Fund, the topper in the category, is due to strategic asset selection with the consumer sector. The category is majorly inclined towards large cap market capitalisation. The consumption sector based mutual fund category held 59% in large cap, followed by 22.25% in small cap, 14.3% in mid cap, and 4.46% in other (includes cash and cash equivalents).

Market experts believe that the small cap and mid cap space are overvalued and large caps are relatively cheaper.

With the category focused on large caps, should an investor make allocation in these funds at the current point of time?

“Considering the strong performance and positive outlook for consumption mutual funds, this could be an interesting opportunity for some investors. The growth in the consumer market and the potential for continued economic support suggest that these funds might offer value. However, it’s important for investors to conduct their own research and carefully consider their individual risk tolerance and investment goals before making any decisions,” commented Kuppala.

“Market conditions can be dynamic, and what appears promising now may change in the future. Diversification and aligning investments with one’s long-term strategy could be key aspects to consider in this context,” he added.

In the last six months, these consumption sector based funds have offered an average return of 30.99%. Kotak Consumption Fund again stood at the first place in the return chart and offered 41.88% return in the last six months, followed by SBI Consumption Opportunities Fund which gave 36.17% return in the same period.

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Quant Consumption Fund stood last in the return chart and gave 21.69% return in the mentioned period.

After looking at the above mentioned performance by these funds, are you interested in making investment in these funds? What strategy should you follow?

“When exploring investments in consumption mutual funds, a diversified approach could be worth considering. Spreading investments across different mutual funds within the consumer sector may help manage risk and potentially enhance returns. Aligning investments with personal financial objectives and maintaining a balanced portfolio can be important steps in this process,” said Chakrivardhan Kuppala.

He also cautioned that, “Keeping an eye on market trends and regularly reviewing the portfolio might aid in making informed decisions. A disciplined, long-term strategy, with periodic adjustments as needed, may help in navigating market fluctuations while aiming for growth.”

Consumption sector based mutual funds are benchmarked against Nifty India Consumption – TRI. In the last three months, Nifty India Consumption – TRI went up by 11.31%.

According to last available data, the wholesale price inflation for July eased to a 3-month low of 2.04% on an annual basis as against a 16-month high of 3.36% in June. Positive rate of inflation in July, 2024 is primarily due to increase in prices of food articles, manufacture of food products, mineral oils, crude petroleum & natural gas, other manufacturing etc. This was a positive factor for the consumption theme and the mutual fund schemes investing in the consumption theme.

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Looking forward, what is the outlook for these funds or the consumption sector as a whole?

“The outlook for the consumption sector in 2024 appears to be relatively positive, with factors such as strong employment growth, stable inflation, and increased consumer spending playing a role. Companies within this sector are also shifting their focus towards “profitable volume” rather than relying solely on price increases, indicating a move towards more innovative and efficient product offerings,” said Chakrivardhan Kuppala.

“While this suggests that consumption funds could be well-positioned to adapt to market changes, it’s important to be mindful of potential shifts in the economic landscape. Investors may want to stay informed about these evolving dynamics to better understand the opportunities and challenges that lie ahead in the sector,” he added.

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.

Mutual fund advisors do not recommend sector or thematic funds to new or inexperienced investors. These schemes are extremely risky and volatile and their fortunes depend entirely on the prospects of the sector or theme. Every sector or theme goes up or down in certain phases in the economy. Regular investors would find it difficult to time their entry and exit in these schemes or wait for the fortunes to change. That is why these schemes are recommended only to seasoned or evolved investors. However, one should invest only a small percentage of the total portfolio in these schemes.

(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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