Invest in private consumption

Private consumption is the new index to track for investors. India’s growing consumption cycle is attracting people, as it now contributes 60 per cent to the annual GDP, and spurs economic growth. According to Value Research India, the thematic mutual funds that connect to it, gave returns of 15.54 per cent over the past three years, and 17 per cent over the past five years (as on 15 December 2025. This explains why more asset management companies are showing increasing interest in entering this segment.

Tata Asset Management, one of India’s leading fund houses, announced the launch of the country’s first multi-cap consumption index fund, which hopes to offer investors a diversified exposure to large cap, midcap, and small cap consumption stocks. The multi-cap (50:30:20l 50 per cent in large caps, and 20 per cent in small caps) open-ended scheme seeks to replicate, and track the BSE (Bombay Stock Exchange) Multicap Consumption 50:30:20 Index, and combine stability with growth opportunities. Recently, Union Mutual Fund launched a similar fund to ride India's growing consumption cycle.

Traditional consumption funds have historically been heavily-skewed towards large caps, and FMCG or auto stocks, often missing the high-growth potential of the emerging sectors. The Tata Group hopes to change this scenario so that investors can put their fingers across several cap-related, sector-linked pies. A thematic fund, say, in consumption, invests at least 80 per cent of the assets in equities related to the theme. In addition, 80 per cent of the portfolios of consumption funds actively monitor firms that benefit from the ongoing and growing consumption trends in the country.

Typically, these funds invest in consumer-facing firms that produce consumer products, and offer services. The category includes various segments such as FMCG, automobiles, telecommunications, and consumer durables. The fund managers use a combination of top-down, and bottom-up approaches to identify the segments, and firms that are likely to benefit in the future. Their emphasis is largely on the fundamentals of the individual businesses. Since the private consumption canvas has grown, so has that of the funds.

Anand Vardarajan, Chief Business Officer, Tata Asset Management, says, “Consumption is a long-term structural theme for India. However, the nature of consumption is shifting from basic needs to lifestyle and aspirational spending. Where the rich spend today, the middle class will spend there tomorrow. While large caps offer stability and brand leadership, true wealth creation potential often lies in midcaps, and small-caps which represent emerging consumption themes like quick commerce, travel, and digital entertainment. The 50:30:20 construct aims to offer investors a transparent, rule-based way to participate in the entire consumption ecosystem without the concentration risk.”

Madhu Nair, CEO, Union Asset Management, adds: “On the back of five big structural changes unveiled by the Government, India seems to be on the cusp of a big shift in broad based consumption. We believe our R.I.S.E. framework is suited to extract the most potential of this consumption theme. The expansion of the consuming class, shift from mass to premium, and the digitisation of marketplaces together could form one of the most powerful multi-decadal investment themes. Through the Union Consumption Fund, we aim to offer investors a disciplined and diversified way to participate in this journey where every rupee spent contributes to the story of progress.”

Experts feel that after GST 2.0, and changes in personal income tax regime, festive consumption is entering a strong upcycle, supported by headline consumer price index at 1.69 per cent, a 13.9 per cent FMCG value growth in the second quarter of this calendar year led by rural recovery, and a record 20 billion UPI transactions worth INR24.85 lakh crore in August 2025. Recent data indicates that the purchases of premium assets, and durables are on the increase. Car sales have zoomed, and so have the purchases of high-end mobiles.

E-commerce sales in this festive season are projected at INR1.2 lakh crore (up more than 27 per cent year-on-year), with quick commerce adding another INR14,000 crore to the total. Rural FMCG consumption is forecast to grow at 14.6 per cent compounded annual growth rate, and reach $220 billion by the year-end. The overall FMCG sales are pegged at $211-245 billion in this calendar year, with a 17-27 per cent compounded growth runway till 2030. Thus, the consumption momentum is likely to continue for years.

With GST 2.0 cuts improving affordability, brands passing on price benefits to consumers, and rising discretionary demand across auto, consumer electronics, apparel, and small appliances, the outlook is for a multi-year consumption revival. Experts highlight that segments such as staples, beauty, and discretionary categories are expected to see sustained festive uplift. These trends and sub-trends are likely to continue beyond the festive season, and into next year.

Finance Minister Nirmala Sitharaman told Parliament recently that the Government hopes to pursue a comprehensive approach to revive and strengthen consumption by combining demand-side support with supply-side income measures, and long-term structural reforms. This strategy, while boosting private consumption, will contribute to higher GDP growths in the future. In a written response to a question in the Lok Sabha, she said that initiatives such as the income tax exemption for earnings up to INR12 lakh a year, recent reductions in GST rates, sustained focus on ease of doing business, skill development, job creation, and infrastructure expansion, along with wider credit availability are expected to lift consumption levels.

According to the finance minister, urban consumption is supported through urban livelihoods, and skilling programmes, tax relief measures, and the expansion of digital payments. Flagship schemes drive the broad-based income growth in rural areas. This bodes well for the retail investors who are betting on the growth story of consumption-based investment themes in the coming years. Such an official mindset, attitude, and goals have excited the mutual funds industry, which desires to gain from these changes.

However, one needs to remember that the consumption mutual funds are largely linked to investments in equities, and are highly risky. Their volatility is linked to overall stock indices, as well as the fortunes of the individual firms. Only those who can stay invested for more than three years, and have a high-risk appetite should invest in these funds, despite the optimistic predictions and estimates. Given their high volatility, financial advisors advise against sector- or theme-focused funds for inexperienced investors. For the experienced ones, the advice is to allocate 10 per cent of the portfolio to these funds. It may be better to seek the help of financial consultants to seek clarifications on risk-taking approaches toward investments.