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| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
This has led to discussions on whether consumption-focused mutual funds are poised for growth.
Sectors poised to benefit
With higher disposable income due to tax relief for the middle class, spending on discretionary consumption is expected to increase.
Devender Singhal, EVP and Fund Manager at Kotak Mahindra AMC, highlights key sectors likely to benefit:
- Low-ticket discretionary consumption: Quick-service restaurants (QSR), alcoholic beverages, apparel, and footwear.
- Consumer services: Online marketplaces and delivery platforms, as consumers prioritise convenience over pricing.
- Auto sector: Two-wheelers and entry-level four-wheelers could see higher demand.
- Consumer durables and home improvement: Higher disposable income may drive demand for home appliances and renovation services.
Consumption funds: Short-term underperformance, long-term gains?
Consumption-focused mutual funds invest not only in FMCG but also technology, financials, industrials, healthcare, and real estate.
While these funds delivered an average return of 27.5% in the last 12 months (up to December 2024), they underperformed 13 out of 20 equity fund categories, according to a Value Research note.
However, historical data suggests stronger long-term performance. Value Research said that on a five-year rolling return basis over the last decade, consumption funds outperformed flexi-cap funds and the Nifty 500 TRI 90% and 72% of the time.
Risks and considerations
Despite their potential, consumption funds have certain risks:
Sector concentration: The top three sectors comprise 77% of their portfolios, increasing vulnerability to market downturns.
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Cyclicality: Two-thirds of the investments are in cyclical industries, making them sensitive to economic fluctuations.
Diversification concerns: Investors may find better risk-adjusted returns in diversified equity funds like multi-cap funds.
Investor strategy post-budget
Singhal believes that increased disposable income and improving rural consumption will drive consumer sector growth through FY26. Government schemes like Ladli Behna and expectations of an 8th Pay Commission salary revision could further boost demand.
Further, rural consumption has seen tailwinds in the past few quarters on the back of normal monsoons and better Kharif output.
Singhal suggests themes such as consumption, auto, and home improvement for investors looking to capitalise on these trends.
“Consumption funds, such as the Kotak Consumption Fund, provide exposure across these sectors, making them a viable option for long-term investors,” he told CNBC-TV18.com.
A study by UBS Securities predicts India will become the third-largest consumer market by 2026.
Given these macroeconomic trends, consumption funds could be a strategic bet for investors, provided they understand the associated risks and allocate funds accordingly.
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