Imagine a market where your investments align with the very things people love to buy and use every day. That’s precisely what thematic consumption funds are all about – investing in shares or stocks of the companies behind the products we consume.
Imagine standing right at the front as India takes centre stage in the global financial scene! Let’s understand how thematic consumption funds offer you special seats to witness India transforming into a top destination for shoppers worldwide.
Understanding Consumption Funds
Consumption funds, a subset of thematic funds, strategically invest in equities of companies driven by consumption themes. Essentially, they focus on consumer-facing businesses that manufacture goods and services used by consumers.
The spectrum of this category encompasses various consumption-oriented segments such as FMCG, automobiles, telecom, and consumer durables.
The Growth Story: India as the 03rd Largest Consumer Market by 2030
With projections indicating that India is poised to become the third-largest consumer market globally by 2030, investing in consumption funds emerges as a compelling opportunity.
This trend positions consumption as a structural improvement story, offering a long-term horizon for investors. Consumption funds, being thematic, hold a unique advantage by straddling both cyclical and defensive sectors.
Nifty India Consumption Index: A Gauge of Consumption Sector Performance
The Nifty India Consumption Index serves as a barometer for the performance of a diverse portfolio of companies representing the domestic consumption sector.
This index encompasses sectors like consumer non-durables, healthcare, auto, telecom services, pharmaceuticals, hotels, media and entertainment, among others.
Comprising 30 companies listed on the National Stock Exchange (NSE), the index reflects the promising landscape of India’s consumption sector.
Changing Dynamics and Consumer Behavior
India’s favourable demographics, the formalization of the economy, increased women’s participation in the workforce, and the growing influence of technology and social media contribute to the evolving consumer landscape.
Aspirational Indians are now more inclined to spend, shifting their consumption patterns from unorganized to organized markets, favoring premium categories. The contemporary consumer is tech-savvy, making immediate purchasing decisions and often relying on credit.
Thematic Consumption Funds: Ideal for Aggressive Investors
Thematic consumption funds, by concentrating their portfolio on consumer-facing companies, inherently carry a higher risk due to concentration.
Therefore, these funds are most suitable for aggressive investors comfortable with assuming higher levels of risk. They tend to perform well during periods of high consumption and economic prosperity.
Tax Implications of Thematic Consumption Funds
Understanding the tax implications is crucial for investors. Dividends from mutual funds are now taxed based on the individual’s income tax slab, eliminating the erstwhile dividend distribution tax (DDT).
Short-term capital gains attract a flat 15% tax rate, while long-term gains up to Rs 1 lakh per year are exempt. Gains exceeding this limit are taxed at 10%, without the benefit of indexation.
Why Invest in Consumption Funds?
- Top-Performing Picks: These funds allow you to invest in some of the best companies driving India’s consumption story, potentially amplifying your returns.
- Riding Economic Waves: As India’s consumer market surges, these funds put your money in sync with the nation’s economic highs, offering a chance to ride the waves of prosperity.
- Aligned with Everyday Choices: Your investments align with the daily preferences and habits of millions, tapping into the pulse of what people buy and use in their daily lives.
- Part of a Global Hub: Positioning yourself in the front row of India’s economic dance means being part of a global hub, witnessing the nation’s rise on the international stage.
- Opportunity for Diversification: While these funds focus on a specific sector, they still provide a level of diversification within that sector, allowing for a balanced exposure to different consumer-driven industries.
- Potential for Benchmark-Beating Returns: With a strategic focus on consumer-facing companies, these funds may outperform benchmark returns, offering a chance for your investments to stand out.
Risks Associated with Thematic Consumption Funds
- Concentration Risk: The inherent concentration towards consumer-facing equities amplifies risks, necessitating careful consideration of potential downsides.
- Volatility and Market Risk: Thematic consumption funds are susceptible to volatility and market fluctuations, exposing investors to potential value drops.
Considerations Before Investing
- Risk Profile Assessment: Conservative investors may find the concentration risk challenging, requiring a readiness to bear higher levels of associated risk.
- Long-Term Commitment: To mitigate risks, investors should adopt an investment horizon exceeding five years, aligning with the long-term growth potential of the consumption sector.
- Diversification Awareness: Investors should recognize that thematic consumption funds lack the benefit of a diversified portfolio, concentrating on equities within a specific sector.
As India dances its way to becoming a global consumer hub, thematic consumption funds offer a front-row seat to this exciting transformation. If you’re ready for a journey that aligns your investments with the everyday choices of millions, these funds might just be the ticket to your financial adventure.
At Rurash Financials, we’ve got a spectrum of options tailored just for you. From pure large-cap funds to core diversified funds, multi-cap/focused funds, sector/thematic funds, and value funds/contra funds – variety is the spice of your investment portfolio.