What are consumption funds and how to invest in them?

What are consumption funds and how to invest in them

Investing is an important step in safeguarding your financial future. But not every investor has the resources, knowledge, or time to make direct investments in securities. Mutual funds offer an opportunity to invest in professionally managed diversified portfolios of stocks, bonds, and other assets even with a single fund. 

Mutual funds follow different strategies and approaches while building up a portfolio to diversify investments and maximise returns with reduced risks. One such approach is thematic investing, where investors may focus on particular themes that they find relevant with high growth potential. There are a number of theme-based mutual fund schemes and one of them is consumption funds. 

So, what are consumption funds? 

Consumption funds are thematic mutual funds that focus on investing in stocks that are consumption oriented. The investments are not restricted to consumer durable mutual funds or FMCG but also include sectors such as auto, retail, and financial services like insurance, private banks, AMCs, etc. This means that when you invest in a consumption fund, your money will be invested in various companies across multiple industries. 

These types of investments can offer investors a potential for decent returns because consumer spending is usually consistent over time. This means that these funds have the potential to remain stable even during times of economic downturn or instability. 

Who should invest in consumption thematic funds?

  • Consumption funds are ideal for investors who are looking for an opportunity to diversify their portfolios with thematic funds and capitalise on their long-term capital appreciation potential.
  • Investors who want to benefit from consumption growth but want the process to be managed by experienced fund managers usually prefer these funds.
  • Investing in these mutual fund schemes requires a moderate risk appetite as they involve stock investments that may be subject to market fluctuations.
  • These funds require at least a 5+ year investment horizon in order to ensure that any losses incurred during short-term fluctuations can be recovered over time once the stock price rises again. 

How to invest in consumption funds?

Investing in consumption mutual funds is not too different from investing in other types of mutual funds. You can start an SIP (systematic investment plan) or invest in lumpsum as well through any online mutual fund investment platform. The steps are:

  • Create an account on the website of your selected financial institution or mutual fund house.
  • Navigate to the mutual funds’ section.
  • Make sure you evaluate some of the best consumption mutual fund schemes beforehand to select the right one.
  • You can select SIP or lumpsum as the investment method.  
  • Enter the investment amount, and if you choose SIP mode, select the frequency of payments as well.
  • Initiate the payment and start tracking your investments so you can stay up-to-date on how your funds are performing.

Although there is no one-size-fits-all approach to investing in these funds, the most effective strategy is to research different types of consumption funds and find the one that best fits your financial goals and risk appetite. 

It is important to consider your own financial situation and go through the scheme information document provided by the fund house. Some key points to understand include the fees associated with the consumption fund offered, the fund’s performance history, the fund’s investment strategy, its portfolio composition, past returns, and any other relevant details regarding risk levels and withdrawal restrictions. 

Leave a Reply