 "mutual fund")
In yet another move to boost consumption demand, the Reserve Bank of India (RBI) cut the repo rate by 50 basis points on June 6, marking a total reduction of 100 bps since the beginning of the year. Lenders lowering rates in response is set to stimulate the economy. Higher consumption will drive economic growth, while also enhancing the performance of funds focused on consumption.
“Consumption funds are a good proxy to play on India’s positive demography, the structural theme of rising per capita income, and low penetration levels across several consumption categories,” says Navin Matta, fund manager - equity, Mahindra Manulife Mutual Fund.
Broad exposure
Consumption-themed funds invest a minimum 80 per cent of their assets in related stocks, spanning sectors such as auto, fast moving consumer goods (FMCG), consumer durables, consumer services, financials, telecom, health care, power, services, and realty.
“Growth of India’s per capita income has created a lot of new opportunities within consumption. In the past two years, many high-growth businesses (1.5-2x GDP growth) have been listed belonging to segments like fashion, quick service restaurants, travel, jewellery, and new-age businesses like ecommerce. More subsectors will emerge in the listed space,” says Siddhant Chhabria, research analyst and fund manager at Mirae Asset Investment Managers (India).
On May 30 this year, 30 consumption-themed funds managed assets worth ₹37,445 crore.
Strong tailwinds
The RBI’s move follows major tax relief for the salaried class in the Union Budget of February 2025: zero tax on income up to ₹12 lakh in a year. This will leave more disposable income in the hands of households. A part of it is likely to boost consumption.
Consumption remains a secular growth story in India, given its young population. “Post Covid, consumption has grown below its potential. Personal consumption expenditure has grown at around 9 per cent compound annual growth rate between FY20 and FY25, versus around 13 per cent between FY10 and FY20. Several factors are at play which can drive mean reversion in mass consumption, including multi-year low inflation, tax relief, interest rate cuts, rural recovery led by better crop yields, and the Eighth Pay Commission award with effect from January 2026,” says Chhabria.
Concentration and other risks
Investors should be mindful of concentration risk. “Consumption funds are thematic in nature and carry higher risk than diversified equity funds,” says Parul Maheshwari, a certified financial planner.
Slow earnings growth could affect these stocks. “Any disappointment in earnings growth trajectory can impact stock returns on account of earnings downgrades and valuation derating,” says Navin Matta, fund manager - equity, Mahindra Manulife Mutual Fund.
Competition from regional and direct-to-consumer (D2C) players has intensified across segments. “These players can leverage e-commerce and quick commerce (q-com) platforms to drive distribution without having an extensive physical distribution network. This can potentially impact the growth or market share of listed consumer names,” says Matta.
Long-term opportunity
Consumption funds can be slow compounders. “Consumption is a multi-year theme. It includes both cyclical and non-cyclical sectors. An ideal investment horizon of five-plus years may benefit investors. Exposure should depend on the investor’s risk profile,” says Chhabria.
Experts recommend including these funds in the satellite portfolio, using systematic investment plans (SIPs). “Aggressive equity investors with an appetite for risk can invest 5-10 per cent of their equity portfolio in a consumption fund with an ideal holding period of more than three years,” says Maheshwari.
