Thematic fund : 

A thematic fund is a type of equity fund that invests in stocks of companies aligned with a specific theme or idea. Unlike traditional mutual funds categorized by market capitalization or investment style, thematic funds focus on a predetermined theme. These funds are more broad-based than sectoral funds, as they pick companies and sectors united by an idea eg. of themes could be manufacturing, infrastructure , transportation etc. 

Here we are going to discuss consumption funds as an investment proposition.

What are consumption funds ?

Consumption funds are a type of thematic mutual fund that focuses on companies benefiting from increased consumer spending. As the name suggests, these funds invest in businesses that cater to the growing needs and desires of consumers. 

So what would the consumption as theme entails as in sectors. The Nifty India Consumption Index is designed to reflect the behavior and performance of a diversified portfolio of companies representing the domestic consumption sector which includes sectors like Consumer Non-durables, Healthcare, Auto, Telecom Services, Pharmaceuticals, Hotels, Media & Entertainment, etc. All these sectors have products or services which are consumed by an individual 

This theme is driven by macroeconomic trends, structural shifts in consumer lifestyles and preferences.

These funds typically invest in companies operating in sectors like:

• Fast-moving consumer goods (FMCG): Companies producing everyday essentials like food, beverages, personal care products, etc.  Most people think that FMCG is the only sector which these funds would invest in but that is exactly not the case.
• Automobiles: Manufacturers and dealers of various vehicles. 
• Telecom: The rise of mobile, mobile data, WIFI connections at home etc.
• Consumer durables: Producers of long-lasting consumer goods like electronics, appliances, furniture, etc.
• Retail: Companies involved in selling products directly to consumers.  
• Restaurants and hotels: Businesses catering to consumer spending on food and lodging.

The list is still not exhaustive, this is just a glimpse of sectors which the fund manager can look into. A consumption fund provides investor access to varied diversified sectors in the economy. 

Why Invest in Consumption Funds?

• India’s Growing Middle Class:

   

  • India has a burgeoning middle class with increasing disposable income, driving consumption growth
  • In recent years, more than 250 million citizens have transitioned out of poverty and joined the neo-middle class
  • According to current projections, the middle class is expected to reach 41% of the country’s citizenry by 2031
  • As 140 million households move into the middle class and another 20 million move into the high-income bracket, they will spend 2-2.5x more on essential categories (food, beverages, apparel, personal care, gadgets, transport and housing) and 3-4x more on services (healthcare, education, entertainment and household care). Upper Middle-income and high-income entrants will drive a 15-20% increase in the ownership of durables (washing machines, refrigerators, TVs and personal vehicles)

• Urbanization:

   

  • The shift towards urban living fuels demand for consumer goods and services.
  • Rising aspiration of the youth 
  • Increased mobile data penetration has further increased the aspiration levels of the people. 
  • This aspiration is driving them to explore a variety of lifestyle products and experiences, including international travel, premium electronics, and luxury goods.

• Rising Income Levels: 

  • India’s young and growing population, with a median age of 28.6 years, is a major driver of consumption growth. 
  • Unlike many ageing nations in the West and East, India will remain a nation of the young with a median age of 31 in 2030, India is well-positioned to reap the benefits of its demographic dividend. 
  • This young population is also more likely to adopt new technologies and trends, fueling consumption growth further. 
  • According to research by the World Economic Forum, growth in income will transform India from a bottom-of- the-pyramid economy to a truly middle-class one, with consumer spending growing from $1.5 trillion to nearly $6 trillion by 2030.

• Digital Revolution: 

• • India has witnessed a significant digital revolution in recent years, with the proliferation of smartphones and affordable internet access. 
  • This has led to a surge in e-commerce and online services, further boosting consumption. 
  • Online shopping, digital entertainment, and various app-based services have become an integral part of the consumer experience.

Risks Involved

• Economic Downturns:

• Economic slowdowns can impact consumer spending and, consequently, fund performance. A situation like COVID, recession hinders people from spending and companies which are consumer facing face a downfall.

• Inflation:

• High inflation can erode purchasing power, affecting consumer demand. This reduces consumers’ ability to buy as much with their money, dampening overall consumption. Additionally, high inflation creates uncertainty, leading people to save more and spend less, further impacting consumption.

• Competition:

A recent flux into thematic funds have created a large amount of money into thematic funds. But it is important to understand which would make sense to you. Reach out to us so we could help you with the same.

Last not least for any investment a person should follow his asset allocation guidelines 

https://wealthinn.in/asset-allocation-guideline-for-investment/

You can reach us to help you design the best fund portfolio , so that you get best results according to your need and assessment.( you can reach us : https://wa.me/message/LC5W5ZNTPSJ5L1)