Consumption theme based mutual funds offer up to 18% return in 6 months. Will GST reforms be a game-changer?
Consumption theme based mutual funds have offered an average return of 12.28% in the last six months with some funds delivering up to 18% return in the same time period. Around 19 funds in the category have marked their presence in the market for the last six months.
Bank of India Consumption Fund delivered the highest return of around 18.05% in the said period, followed by Mirae Asset Great Consumer Fund offered a return of 15.92% in the last six months.
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Kotak Consumption Fund gave 15.59% return in the same period. Quant Consumption Fund gave the lowest return of 3.37% in the same time horizon. ITI Bharat Consumption Fund, a new entrant in the category was launched in February 2025.
Prime Minister Narendra Modi in his Independence Day speech made an announcement on GST rate cuts which marks a major overhaul of the indirect tax structure. The proposal seeks to replace the current four-tier structure with two main slabs of 5% and 18%, while maintaining a 40% slab for luxury and sin goods.
Nearly all items taxed at 12% are expected to move to 5%, and most goods in the 28% slab are likely to shift to 18%. Analysts while commenting on whether this GST will boost India’s consumption story says that lower GST rates improve affordability and boost demand across categories.“Lower GST rates improve affordability and boost demand across categories. This strengthens the fundamentals of companies in consumption-focused funds by driving higher volumes, margins, and earnings visibility,” Sagar Shinde, VP of Research at Fisdom, shared with ETMutualFunds.Another analyst considers this as a welcome step. “While the GST reform is a welcome step, it would be prudent to wait and watch how its implementation unfolds,” Himanshu Srivastava Associate Director Morningstar Investment Research India told ETMutualFunds.According to the centre’s draft shared with states, 99% of the current 12% slab items are proposed to shift to 5%; 90% of the 28% slab items are proposed to shift to 18%. The PM has urged cooperation for implementation of this proposal by Diwali 2025.
A report by Tata Mutual Fund mentions that the proposal is likely to benefit nearly four to five sectors which includes FMCG & processed food, consumer durables / electronics, automobiles, cement & materials, and insurance premiums.
The report by the fund house further adds that petroleum, electricity, alcohol are unlikely to be brought under GST in this round.
While commenting on which sectors are likely to benefit the most from GST reforms and are consumption funds a better bet compared to diversified equity mutual funds, the expert from Morningstar says that from an investment perspective, diversified equity funds are better placed as they not only capture opportunities in consumption-oriented names but also have the flexibility to allocate across sectors.
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“In contrast, consumption funds are narrow thematic plays, with their fortunes tied to the performance of a single sector. If that theme underperforms, these funds lack the flexibility that diversified equity strategies enjoy,” he added.
Echoing a similar opinion that diversified equity mutual funds remain better for balanced and long-term exposure, Shinde adds that FMCG and retail benefit most from cheaper essentials, while autos and consumer durables gain from lower taxes on big-ticket items and also the consumption funds may see sharper upside.
The council decision is pending on the proposal draft shared by the centre. Tata Mutual Fund report mentions that investors should watch some key events such as September GST Council meet(s), final rate notifications, transition dates, the exact item lists for 5% and 18%, and any input-tax-credit clarifications.
Shinde recommends that markets may price in reforms early, so waiting risks, missing opportunities and SIPs are the preferred route to play the theme, while lump-sum investments suit long-term investors with higher risk appetite.
On the contrary, Srivastava cautions investors and mentions that such thematic funds are best suited for investors who have a good grasp of sector dynamics or the resources to track them closely, and even then, a measured approach is advisable and for most investors, however, diversified equity funds remain a more balanced and prudent option.
The performance by the consumption theme based funds was marginally down in the last one year as on an average these funds lost 0.52%. In the last three years, these funds have offered an average return of 16.15% and Tata India Consumer Fund has offered the highest return of 18.65% in the last three years.
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Mirae Asset Great Consumer Fund delivered a return of 18.20% in the last three years. ICICI Pru FMCG Fund gave the lowest return of around 9.30% in the same period.
Looking at the past performance of consumption theme based funds and GST reforms announcement, Shinde shares that the outlook is positive as GST enhances the strength of consumption-oriented businesses and that said, premium valuations mean these funds are best treated as tactical satellite allocations alongside core diversified holdings.
Consumption funds are thematic funds that invest in equities of companies that are driven by consumption themes. These funds typically invest in consumer-facing companies that produce goods and services used by consumers. The category consists of different consumption-oriented segments such as FMCG, automobiles, telecom, and consumer durables.
One should always consider risk appetite, investment horizon, and goals before making any investment decisions.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
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