Top 5 Mutual Funds with Strong Holdings in India's Consumption Sector

India's consumption sector has been witnessing robust growth, fueled by favourable demographic trends, rising income levels, and government initiatives. The sector is projected to grow significantly in the coming years, with an expected market size of USD 6 trillion by 2030. This growth is underpinned by factors such as an expanding middle class, increasing urbanization, and technological advancements driving digital consumption.

[Read: What Impact Will the Union Budget 2025-26 Have on the Equity Markets and Mutual Funds]

The sector comprises various sub-sectors, including Fast-Moving Consumer Goods (FMCG), retail, e-commerce, automobiles, consumer durables, healthcare, pharmaceuticals, and travel & hospitality. FMCG alone is expected to reach USD 220 billion by the end of FY 2025, while e-commerce is projected to surpass USD 200 billion by 2026, fueled by increased digital penetration and evolving consumer preferences.

The growth potential of the consumption sector remains highly promising, driven by India's young population, rapid digital adoption, and supportive government policies.

The Union Budget 2025's focus on infrastructure, rural development, and digital economy initiatives is expected to further stimulate consumer demand across urban and rural areas. Additionally, sustainability trends and technological innovations will continue to shape consumption patterns, offering new growth opportunities for businesses and investors alike.

Union Budget 2025-26: Consumption Sector Reforms

The Union Budget 2025-26 has placed significant emphasis on boosting domestic consumption, with strategic allocations aimed at enhancing rural demand, infrastructure development, and digital penetration. Key highlights include:

1. Rural Development and Employment: Allocation of funds for rural infrastructure projects and Rs 86,000 crore for the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA), which is consistent with the revised estimate for 2024-25 to stimulate rural consumption.

2. Urban Infrastructure: Rs 1.7 lakh crore allocated for smart cities and urban mobility projects, expected to boost discretionary spending in urban areas.

3. Tax Reforms: Adjustments in personal income tax slabs under the new tax regime have increased disposable incomes, potentially driving higher consumer spending.

4. Digital Economy: Rs 16,000 crore allocated to promote digital payments and e-commerce infrastructure, supporting the growth of online retail and fintech.

[Read: Union Budget 2025-26: Here is What Changed for Your Personal Finance and Income Tax]

India's consumption sector is poised for sustained growth, underpinned by the following trends:

• With over 65% of the population below the age of 35, India represents one of the youngest consumer markets globally.

• The average per capita income is projected to grow at a CAGR of 6-7% over the next five years, fuelling discretionary spending.

• By 2030, nearly 40% of India's population will reside in urban areas, increasing demand for diverse consumer goods and services.

• The rapid adoption of smartphones and internet penetration is reshaping consumption patterns, with e-commerce expected to grow at a CAGR of 19% from 2024 to 2028.

India's consumption sector is vast and diverse, comprising multiple sub-sectors that each play a crucial role in its expansion. Including key segments like food & beverages, personal care, and household products, the FMCG market is projected to reach USD 220 billion by 2025.

The organized retail sector is experiencing rapid growth, driven by the expansion of shopping malls and the surge in e-commerce platforms. With increasing adoption of digital payments and advancements in logistics, this segment is expected to exceed USD 200 billion by 2026, reflecting strong consumer confidence.

The electronics and appliances market is witnessing significant growth, supported by urbanization and rising disposable incomes. Additionally, electric vehicles (EVs) are gaining traction, marking a shift toward sustainable consumer choices.

Post-pandemic, health-conscious spending has surged, with greater emphasis on wellness and preventive healthcare. The sector has shown resilient recovery, with domestic tourism rebounding strongly, further boosting overall consumption trends.

The Next Phase of Growth in India's Consumption Sector

The future outlook for India's consumption sector remains highly optimistic, driven by structural shifts and favourable macroeconomic trends. As the economy expands, the shift from necessity-driven spending to aspirational consumption is gaining momentum, further boosting sectors such as luxury retail, premium personal care, and digital services.

With internet penetration surpassing 850 million users, online retail is expected to account for a significant share of total consumption. E-commerce giants, digital payment platforms, and quick-commerce services are revolutionizing consumer access to goods and services, creating new investment avenues.

Another key driver is sustainability and conscious consumerism. Increasing awareness about environmental concerns is propelling demand for sustainable products, eco-friendly packaging, and ethical business practices. Companies that integrate ESG (Environmental, Social, and Governance) factors into their operations are likely to attract a growing segment of mindful consumers and investors.

Furthermore, premiumization and brand loyalty are emerging as dominant trends. Consumers are increasingly opting for high-quality and branded products over generic alternatives. This trend is particularly visible in categories like health and wellness, organic foods, luxury goods, and personal technology, offering significant opportunities for premium brands.

The future outlook for India's consumption sector is exceptionally promising, the projected market size may reach USD 6 trillion by 2030, making India the third-largest consumer market globally.

How to Leverage India's Consumption Growth for Wealth Creation

Investors can capitalize on India's evolving consumer market by investing in mutual funds focused on the consumption sector, which provides diversified exposure to companies benefiting from rising consumer demand. Funds investing in FMCG, retail, e-commerce, automobiles, and discretionary spending sectors stand to gain as incomes rise, urbanization expands, and digital adoption accelerates.

[Read: Which FMCG Mutual Fund is Right for You?]

With India's consumption story fueled by various growth factors, mutual funds in this space offer an opportunity to benefit from the sector's resilience and sustained growth potential.

Here's a curated list of the top 5 mutual funds holding a high allocation to consumption stocks in India:

#1 - ICICI Pru FMCG Fund

The ICICI Pru FMCG Fund is a sectoral equity fund that primarily invests in companies belonging to the FMCG (Fast Moving Consumer Goods) sector. The fund aims to generate long-term capital appreciation by investing in high-growth FMCG stocks.

Launched in March 1999, the scheme currently holds an AUM of Rs 1760.61 crore. The investment strategy revolves around picking top-performing FMCG companies, focusing on those with strong brand value, robust distribution networks, and consistent revenue generation. These companies often have strong fundamentals and can be less volatile compared to other sectors, offering steady growth.

It mainly invests in FMCG stocks, which include sectors like personal care, food and beverages, household products, and healthcare.

Notably, ITC Ltd. holds the largest weight in the portfolio at 30.64%, reflecting its significant presence in sectors like FMCG, hotels, and paperboards. Hindustan Unilever Ltd. (HUL) is also a major player, with a 17.23% allocation, known for its diverse portfolio spanning personal care, home care, and food products. Other significant holdings include Britannia Industries Ltd., Godrej Consumer Products Ltd., and Dabur India Ltd., all of which focus on essential household and personal care products.

The ICICI Prudential FMCG Fund has shown consistent performance, benefiting from the inherent stability of the FMCG sector. Over a 5 to 7-year period, the fund has delivered CAGRs of 15.89% and 14.23%, respectively. Since its inception, it has achieved a 13.97% CAGR, outperforming its benchmark, the Nifty FMCG TRI, though it has slightly lagged behind the category average.

Being a sector-specific fund, its performance is closely tied to the overall growth of the FMCG sector, which can be impacted by factors such as consumer spending, inflation, and fluctuations in raw material prices.

#2 - Nippon India Consumption Fund

The Nippon India Consumption Fund is an equity mutual fund that focuses on investing in companies within the consumption sector, which includes businesses that produce goods and services consumed by individuals.

This could encompass industries such as FMCG (Fast-Moving Consumer Goods), retail, entertainment, and consumer durables. The primary goal of this fund is to benefit from the growing demand for consumer goods, especially as economies develop, and people's purchasing power increases. Launched in September 2004, the scheme currently holds an AUM of Rs 2,184.16 crore.

The portfolio allocation highlights key stocks in various sectors, Bharti Airtel, allocated 7.09% of the portfolio, is a major player in India's telecommunications industry, providing mobile, broadband, and digital services. With increasing mobile data consumption and 5G rollout, Airtel continues to benefit from strong demand in the telecom space.

On the other hand, Mahindra & Mahindra Ltd., representing 6.26% of the allocation, is a diversified company primarily focused on manufacturing automobiles, including SUVs, commercial vehicles, and tractors, along with a growing presence in the electric vehicle (EV) sector.

#3 - Kotak Consumption Fund

The Kotak Consumption Fund is a mutual fund scheme primarily focused on investing in companies that are positioned to benefit from the growing consumption story in India. This includes sectors like FMCG, retail, automobiles, consumer durables, and others that directly or indirectly relate to consumer demand.

Launched in November 2023, the scheme holds an AUM of Rs 1116.93 crore, since it was introduced in the recent past it does not hold a long performance track record.

The Kotak Consumption Fund exhibits a diversified portfolio with a strong emphasis on FMCG and automobile stocks, showcasing its focus on sectors driven by India's growing consumption. Leading the allocation are ITC Ltd. (8.71%) and Bharti Airtel Ltd. (8.49%), with significant weights also given to key players like Hindustan Unilever Ltd. and Hero MotoCorp Ltd.

Notably, Maruti Suzuki India Ltd. holds a 7.57% allocation in the fund. It is one of the country's largest automobile manufacturers, primarily known for its extensive range of cars catering to various segments of the market.

#4 - Baroda BNP Paribas India Consumption Fund

The Baroda BNP Paribas India Consumption Fund primarily invests in companies that are expected to benefit from India's consumption growth.

The fund generally invests in both large-cap and mid-cap stocks, with a bias towards companies benefiting from the consumption theme. It takes a bottom-up approach to stock selection, focusing on growth prospects, financials, and sector dynamics.

The fund has a strong concentration in FMCG (Fast Moving Consumer Goods), with major holdings like ITC Ltd. (6.93%), Hindustan Unilever Ltd. (4.75%), and Dabur India Ltd. (1.98%), which reflects the importance of consumer demand in this sector.

The fund's performance is influenced by India's macroeconomic conditions, government policies supporting consumer industries, and overall market trends. Over a 5 year period, the fund has delivered CAGRs of 22.65%. Since its inception, it has achieved a 21.16% CAGR, outperforming its benchmark, the Nifty FMCG TRI and the consumption category average.

#5 - Aditya Birla SL India GenNext Fund

The Aditya Birla SL India GenNext Fund primarily focuses on investing in businesses poised to benefit from India's long-term growth story. It aims to capitalize on companies that are well-positioned in emerging sectors like technology, innovation, consumer goods, and infrastructure, which are expected to drive India's future economic expansion.

Launched in August 2005, the scheme currently holds an AUM of Rs 5,858.44 crore. It allocates 67.15% to large-cap stocks, 16.44 % to midcaps and 15.83% to small caps across the consumption sector.

The largest allocation is in Bharti Airtel Ltd. from the Telecom sector, at 4.72%, followed by ITC Ltd. from the FMCG sector, with a 5.14% allocation. The allocation strategy demonstrates a mix of established blue-chip stocks and emerging industry leaders, providing the fund with both stability and growth prospects.

The scheme has shown consistent performance, benefiting from the inherent stability of the FMCG sector. Over a 5 to 7-year period, the fund has delivered CAGRs of 20.67% and 17.04%, respectively. Since its inception, it has achieved a 17.79% CAGR, outperforming its benchmark, the Nifty FMCG TRI, Nifty India Consumption Index and the category average.

Overall, all these consumption sector-oriented schemes are suitable for investors with a medium to long-term investment horizon (5 years or more) who are looking for exposure to the Indian consumption sector and are willing to accept volatility for potentially higher returns.

To Conclude...

India's consumption sector embodies the country's economic dynamism, reflecting the aspirations of a young, tech-savvy, and increasingly affluent population. Budget 2025's strategic focus, coupled with macroeconomic trends, positions the sector for robust growth.

For investors, this landscape offers a wealth of opportunities to participate in India's consumer-driven growth story, making it an essential component of a forward-looking investment portfolio.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.