Consumption Mutual Funds

Consumer expenditure is the foundation of economic development. With rising aspirations, income levels, and quality of life, companies catering to consumers' needs have the capability to generate further growth opportunities.

Consumption mutual funds give investors the opportunity to take benefit of this economic trend through investments in firms that derive value from consumer spending. Be it retail, fast-moving consumer goods, automobiles, healthcare, hospitality, or even digital products, Consumption Funds will afford investors the opportunity to get involved in firms whose fortunes are tied directly to consumer behaviour.

What are Consumption Funds?

A Consumption Fund is a thematic mutual fund scheme which primarily invests in stocks of companies likely to gain from growing consumer expenditure. Such mutual funds focus on areas that either directly or indirectly support consumer-oriented services. As a result, these funds are ideal investment avenues for those who wish to make profits from the growth in economy and demographics.

Consumption mutual fund portfolio may comprise companies from these sectors:

• Fast Moving Consumer Goods (FMCG)
• Retail and e-commerce
• Consumer Durables
• Auto & Auto Ancillaries
• Pharmaceuticals and Healthcare
• Hospitality and Travel
• Telecommunications and Digital Services
• Financial Services (consumption-linked)

How to Invest in Consumption Mutual Funds?

You can invest in consumption mutual funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose suitable consumption mutual fund

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Features of Consumption Mutual Funds

• Exposure to Consumption-Linked Companies: Fund managers make investments in different industries and companies whose performance is enhanced by increased consumer spending.
• Growth Investing Approach: The fund focused on the companies which can sustain growth amid higher incomes and changing consumer behavior are targeted.
• Professional Management: Professional fund managers select and invest in companies whose performance will be driven by consumption patterns.
• Wealth Generation Opportunity: These funds have been designed for investors who wish to build wealth through capital appreciation.
• Growth Linked With Economic Trends: With investment in these funds, you can enjoy the benefits of economic structures such as urbanisation, increased middle-income, and digital trends.

Why to Invest in Consumer Mutual Funds?

• Benefit from Rising Consumer Spending: Increasing discretionary spending coupled with lifestyle changes is driving the economy to consume.
• Long-Term Structural Changes: Urbanisation, digitisation, and demographic changes underpin strong consumer demand.
• Diversification Strategy: These funds provide diversification into themes that work alongside diversified equities.
• Opportunities for Creating Wealth: Companies serving consumers are benefited from recurring demand and scalable business models.

Taxation Rules for Consumer Mutual Funds

The consumer mutual funds are equity oriented as they invest mainly in shares of listed companies and taxed similar to equity mutual funds:

• Short-Term Capital Gains (STCG): If the mutual fund units are sold within 12 months from the date of purchase, the profits will be taxed at 20%, with applicable surcharge and cess.
• Long-Term Capital Gains (LTCG): Profits made from selling units after 12 months on gains beyond ₹1.25 lakh in a fiscal year will be taxed at 12.5%, whereas LTCG up to ₹1.25 lakh is tax-exempt.
• **Dividend Income: **The dividend received will be taxed as per the slab rate.

Investors should note that the tax laws are subject to change, investors should consult with professionals for personalised advice.