Invest in Conglomerate Funds for full cycle, limit to 5% allocation

Conglomerate firms are resilient, but risks in one unit can spill across the group

Mutual funds are introducing a new thematic option for investors — conglomerate funds — which focus on large industrial groups that house multiple businesses under one umbrella. The new fund offer (NFO) of Baroda BNP Paribas Business Conglomerates Fund closed on September 16. ICICI Prudential Conglomerate Fund’s NFO will open on October 3, 2025. Aditya Birla Conglomerate Fund, launched in December 2024, managed assets of ₹1,606 crore as on August 31, 2025. Tata BSE Select Business Groups Index Fund, a passive scheme, had assets under management (AUM) of ₹204 crore as on the same date. 

Large industrial groups housing multiple businesses under one roof, technically known as conglomerates, have been the cornerstones of the Indian economy. “Business Conglomerate (BC) funds allow investors to participate in diversified business groups within a single portfolio. These groups operate in multiple businesses across sectors, have strong brands, robust cash flows, can withstand challenging business cycles, and expand into new sectors by incubating and growing, thereby making them attractive long-term investments,” says Harish Krishnan, co-chief investment officer (co-CIO) and head of equity, Aditya Birla Sun Life Asset Management Company (AMC). 

A conglomerate fund typically invests at least 80 per cent of its portfolio in stocks of leading diversified business groups, which straddle both traditional and new-age sectors. 

Bright prospects 

Conglomerates have a long history in India. Many are poised to benefit from the current business and policy climate. “Protectionist policies, high real rates, and uncertain supply chains mark the current macro regime. This creates opportunities for businesses with strong balance sheets, efficient capital access, and local integration capabilities. This is a classic setup for well-run conglomerates to thrive,” says Nirav R Karkera, head of research, Fisdom. 

Growth drivers 

The conglomerate universe has several growth drivers. “The key factors that will drive performance in the near term include the government’s infrastructure and manufacturing push, sectoral policy support, stable interest rates, improved profitability of group companies, and value unlocking through corporate restructuring and demergers, leading to clearer ownership, sharper focus, and potential for faster growth,” says Krishnan. 

“The business case of conglomerates is augmented by che­aper access to institutional fun­ding, the ability to cross-sell, and leverage the group brand equity to build a business faster and more efficiently. Funding institutions are also more prone to assign lower risk weights on groups that have proven repayment track records,” says Jitendra Sriram, senior fund manager, Baroda BNP Paribas Mutual Fund. 

Risks can spread 

Investors should also be aware of their limitations. “The complex structures of conglomerates often attract criticism where such companies trade at compressed valuations for extended periods. Additionally, high correlations across verticals mean risks in one segment can cascade across the group’s ecosystem,” says Karkera. 

Being thematic, these funds come with higher concentration risk. “The risk profile of these thematic funds would be slightly elevated compared to a normal diversified product,” says Sriram. 

Good for satellite holding 

Allocate to such funds only after building a core diversified equity portfolio. “Such thematic plays belong in the satellite allocation of the equity portfolio. The theme works for investors seeking multi-cycle resilience while being comfortable with group-level risks. Begin by allocating 5–10 per cent of the equity allocation to them, with a holding period of five years plus,” says Karkera. 

“Conglomerate funds are ideal for those with moderate to high-risk appetite and who can remain invested over a complete business cycle, which can typically last for a three-year period. Those with a very short-term horizon or those seeking predictable, sector-specific returns may avoid these funds,” says Krishnan.

 

Benefits and downsides

Pros

• Group companies are resilient, enjoy access  to cheaper funding
• Cross-selling opportunities

Cons

• Complex structures, compressed valuations
• Risk contagion could  spread across verticals

The writer is a Gurugram-based independent journalist