Only two consumption funds gave over 10% SIP returns in 3 years, while one scheme posted less than 1%: Here's why

Consumption funds are thematic mutual funds that tap into India's consumption-focused sectors and stocks. According to the Value Research data list, there are a total of 37 thematic consumption funds.

However, out of these, only two funds have delivered more than 10% SIP returns over the last three years, while one scheme has given returns of less than 1%. Here's what you should know about these funds.

HSBC Consumption Fund and Tata India Consumer Fund topped the category with over 12% SIP returns over the last three years. On the other hand, SBI Consumption Opportunities Fund did not even touch 1% returns. The returns among consumption funds vary significantly. Nilesh D Naik, Head of Mutual Funds at PhonePe, explained that “There has been a significant divergence in performance among stocks within the consumption sector”.

"While the Nifty Consumption Index has delivered an average absolute return of 18%, the top third of these stocks saw an average appreciation of 38%, compared to near-zero growth for the bottom third”.

He added that stock selection has played an important role in the relative outperformance of funds tracking this sector.

A comparison of the portfolio composition of the higher- and lower-return funds also shows differences. HSBC Consumption Fund has 97.16% of its assets invested in equities, with the remaining allocation in cash.

SBI Consumption Opportunities Fund has 98.2% in equity, 0.1% in debt and 1.7% in cash and cash equivalents.

HSBC Fund's top five stock holdings are Eternal , Bharti Airtel , Radico Khaitan , Maruti Suzuki and Titan .

SBI Fund's top five stocks are Mahindra & Mahindra , Asian Paints , Maruti Suzuki, Jubilant FoodWorks and Berger Paints .

While the two funds have around 50 stocks each, and consumer discretionary remains the top sector in both, there is a major difference in their stock holdings.

Naik said, “The auto sector has been a clear outperformer within the Nifty Consumption Index, while certain FMCG names have lagged over the past three years”.

Naik added that, “ Passive consumption funds track indices with allocations typically tied to the free-float market capitalisation of stocks. Conversely, active portfolio managers determine allocations based on their own assessment of individual securities”.

However, he said there is no clear trend indicating that one style consistently outperforms the other.

Naik added that “Investing in thematic funds based on past performance can be misleading, as sectors and themes tend to be significantly more cyclical than the broader market”.