Consumption vs FMCG Funds: What’s the Difference?

A consumption fund is a type of equity mutual fund scheme that falls under the thematic mutual fund category. Consumption mutual funds invest at least 80% of their assets in equities and equity-related instruments of businesses that cater to consumer needs.

These companies manufacture goods and services that are regularly used by customers, including: 

• Food

• Beverages

• Personal care items

• Telecom services

Simply put, consumption funds aim to benefit from the rising consumer demand for these goods and services. As the demand grows and spending increases, these companies may also see a growth in their revenue, which may translate into potential gains for investors. 

FMCG mutual funds are sectoral equity mutual fund schemes that invest primarily in companies that manufacture and sell fast-moving consumer goods. FMCG products are everyday essential products that have a high turnover rate. This means they are produced, marketed, and consumed in a very short period of time.

Some examples of products manufactured by these companies include: 

• Detergent

• Soaps and shampoos

• Cosmetics 

• Packaged food

These are products that are consumed regularly and have consistent demand regardless of economic conditions. Unlike broader consumer mutual funds, consumption-based mutual funds that focus on the FMCG sector concentrate mainly on companies within this specific sector. As a result, their portfolio is more limited in terms of sector exposure.

While both categories are linked to consumer spending, the difference lies in scope, diversification, and risk profile. Here’s how consumption funds and FMCG funds differ:
 

• Scheme Type

  The Tata India Consumer Fund is an open-ended equity scheme investing in the consumption-oriented sector.
   

• Investment Objective

  The investment objective of the Tata Consumer Mutual Fund Scheme is to seek long-term capital appreciation by investing at least 80% of its net assets in equity/equity-related instruments of the companies in the consumption-oriented sectors in India.

  However, there is no assurance or guarantee that the investment objective of the Scheme will be achieved. The Scheme does not assure or guarantee any returns. Like all sectoral funds, returns will depend on the sector’s performance.
   

• Asset Allocation

  The indicative asset allocation of this consumption-themed mutual fund scheme is as follows:

  • Equity and equity-related assets of companies in the consumer macro-economic sector: 80%-100%

  • Other equity/Equity related instruments exposure: 0%-20%

  • Debt and money market instruments: 0%-20%
     

Choosing between a consumption fund and an FMCG-focused fund depends on what kind of exposure you are looking for within the consumption space. While both fall under the consumer funds category, they may differ in terms of risk exposure and portfolio fit. 
 

Who May Invest in General Consumption Funds

• Investors looking to participate in India’s overall consumption growth story

• Those comfortable with thematic exposure across multiple consumption-based sectors

• Investors with a long-term investment horizon

• Those who already have a diversified core portfolio and want to add a thematic allocation

Who May Invest in FMCG Funds

• Investors seeking exposure to companies dealing in essential consumer goods

• Those who prefer relatively stable demand-driven businesses

• Investors looking for a more focused allocation within the consumption space

• Those who understand the risks of sector concentration

   

To conclude, both consumption mutual funds and FMCG mutual funds are designed around the idea of benefiting from rising consumer demands. However, both approach this trend differently. 

• Consumption funds take a broader approach by investing in the theme of consumption, spreading across various sectors (including FMCG).

• FMCG mutual funds are sectoral funds that take a narrower approach to focus solely on the fast-moving consumer goods sector (everyday essentials).

Both may work well for growth-oriented investors who have a very high risk tolerance and a long-term horizon. Deciding between the two depends on what you’re looking for - whether you need thematic exposure to consumption or are willing to tap into a specific consumer sector.

1. Are consumption mutual funds thematic or sectoral?

Consumption mutual funds are classified as thematic mutual funds because most such consumption-based funds invest in businesses that operate within this theme. These may include FMCG companies, telecom companies, and even automobile businesses.

2. Are FMCG mutual funds safer than pure consumption funds?

FMCG funds cannot be classified as ‘safer’ than consumption funds. However, FMCG mutual funds invest in everyday essentials where the demand remains relatively stable. This may make them less volatile over the long-run. That said, they do carry higher sector-specific risks than general consumption funds that invest in different sectors.
 

3. Can I invest in both consumption funds and FMCG mutual funds?

Yes. It is possible to invest in both if you think that it fits your portfolio and goals. But do check for stocks held by each scheme as FMCG is a subset of consumption funds, so both may end up investing in the same businesses, which can dilute diversification benefits. 

4. Are consumption mutual funds suitable for beginners?

Typically, consumption mutual funds are not suitable for beginners. These funds may be more well-suited for investors who already have a diversified core portfolio and knowledge of the theme. 

The views mentioned above are for information & educational purposes only and do not construe to be any investment, legal, or taxation advice. Investors must do their own research before investing. The views expressed in this article are personal in nature and in is no way trying to predict the markets or to time them. Any action taken by you on the basis of the information contained herein is your responsibility alone, and Tata Asset Management Pvt. Ltd. will not be liable in any manner for the consequences of such action taken by you. Please consult your Mutual Fund Distributor before investing. The views expressed in this article may not reflect in the scheme portfolios of Tata Mutual Fund. There are no guaranteed or assured returns under any of the schemes of Tata Mutual Fund.