Consumption funds: High returns with high risk. SBI Consumption Opportunities Fund gives 103.56% 5Y returns

Consumption funds to shine because of higher disposable incomes!

consumption fund

Consumption funds are mostly made up of companies benefitting from discretionary spending. The stocks are from defensive sectors like the FMCG, Pharma, Telecom, Auto, etc. With the expected lower future inflation and rising incomes because of rapid urbanization, consumption in India is set to increase.

This increase in consumption can benefit the consumption sector stocks, and therefore experts recommend investing in consumption funds. The inflation has reduced to 7.01% in June from 7.79% in April. If the commodities cool down further, discretionary spending might rise to give a boost to consumption stocks. 

Related: Best liquid mutual funds to invest in India in 2022

Why consumption funds?

The past year's returns in consumption funds have been very high as compared to the other funds. The returns are 18.19% in the last year for Nifty India Consumption Index compared to the returns of 7.91% in the Nifty50 index. The Nifty consumption index has been outperforming on the back of recovery from the pandemic, and discretionary spending is rising. The PE ratio of the Nifty consumption index has come down from 78.64 to 39.7.

returns on consumption funds

*The returns are absolute returns

As seen above, the returns of consumption funds have been particularly high in the last year on the back of recovery from the pandemic, and it is expected to increase further as per the experts. The consumption sector is expected to give good returns if inflation comes down and discretionary spending rises. Also, past returns are no guarantee of future returns, and you should understand the risk factors before investing.

Related: Different types of mutual funds

As India is a developing economy with median age expected to be 30 years by 2030, the consumption in India will remain high. Also, with female participation in the workforce increasing, the consumption sector can benefit, and the returns for the investors can be good. But, as the sectoral funds are riskier than diversified funds, you should keep the allocation in the consumption funds low. The best consumption funds are ICICI Prudential Bharat Consumption Fund and SBI Consumption Opportunities Fund.

To learn more about mutual funds, also read Sectoral funds Vs Thematic funds: Which one should an investor choose?

SBI Consumption Opportunities Fund 

Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.

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