Mutual funds have consistently proved themselves as a potential financial instrument which can help create wealth over time. Among others, FMCG mutual funds are a great investment opportunity for investors who are keen on tapping into steady and reliable growth. Historically, this sector has demonstrated impressive performance, emerging as a consistent compounder of wealth over time.
At the core of the Indian economy, the FMCG sector's stability and its direct connection to the everyday needs of consumers make it a compelling candidate to invest and diversify the portfolio.
Keeping an active view of market trends and continuously evaluating each firm can be taxing and cumbersome. In such cases taking a mutual fund route could be a promising choice. FMCG mutual funds offer a simplified pathway to investing in a collection of top-performing FMCG companies, potentially leading to stable returns in the long run. Let us explore the world of FMCG mutual funds, their features, benefits, and how you can make them a part of your investment journey.
What are FMCG mutual funds?
FMCG Mutual Funds are thematic investment funds that allocate a majority of their corpus to companies operating in the FMCG sector. This sector includes businesses that produce or distribute everyday items like food, beverages, personal care, household products, etc. Due to the nature of the products, there is a continuous demand for these goods. FMCG companies often offer stable returns, making FMCG mutual funds an attractive option for investors looking for moderate-risk opportunities.
Features of FMCG mutual funds
- Purpose/Objective of investment
Different mutual funds cater to different types of investors. Generally, the primary objective of investing in FMCG mutual funds is to achieve long-term capital growth by investing in companies whose products have steady demand in the market. The FMCG sector is non-cyclical. These funds try to leverage it and find opportunities where the demand for products remains consistent regardless of economic conditions. - The upside
- Stability: In the past, the FMCG sector has shown lesser volatility when compared to its peers in the stock market. Knowing this, FMCG mutual funds can offer investors a safer haven during times of market volatility.
- Growth potential: With an increase in consumer spending and growing urbanisation in India, the FMCG sector is placed for growth in the years to come.
- The downside
- Limited exposure: Investing heavily in a single sector is not recommended. While FMCG mutual funds provide investors with diverse companies within the FMCG sector, investors should also invest in multiple sectors to avoid any sector downturns.
- Competition and regulatory risks: Intense competition and changing government policies can impact the performance of FMCG companies.
- Relevance
India’s per-capita income and the middle-class base are rising, these demographic trend acts as tailwinds for the FMCG sector. Alongside this, with advancements in technology and supply chain, the sector continues to grow at a steady rate. - Asset allocation
FMCG mutual funds typically invest in a mix of large-cap, mid-cap, and small-cap companies within the FMCG sector, aiming to balance risk and reward by diversifying across companies of different sizes and market shares.
Also read: Different types of investments
Factors to consider before investing in FMCG Mutual Fund
Before investing in FMCG mutual funds, there are some critical factors to be considered to make a wise choice. Below are some of the key factors:
- Performance track record: Evaluate how the fund has performed historically, especially during different market cycles, to gauge its resilience and return potential.
- Fund management team: Research the experience and expertise of the team managing the fund, as their decisions greatly influence the fund's performance.
- Expense ratio: Look at the fund's expense ratio, since lower costs can lead to higher net returns for investors over time.
- Asset allocation strategy: Understand how the fund allocates its assets across various FMCG companies and sub-sectors, indicating its diversification and risk management approach.
- Macroeconomic trends: Consider broader economic factors that could impact the FMCG sector, such as changes in consumer spending habits and regulatory updates, to assess potential risks and opportunities.
How to invest in FMCG mutual funds?
Investing in FMCG mutual funds is straightforward. You can start by researching various FMCG mutual funds to find one that aligns with your investment goals and risk tolerance. When choosing a mutual fund, take into account the fund's track record of performance, expense ratio, and the expertise of the fund manager.
After selecting a fund, you can make direct investments through the Asset Management Company's website, through reputable platforms or with the help of qualified financial advisors. Utilising tools like the SIP calculator can help you plan your investment strategy effectively.
Conclusion
FMCG mutual funds offer a unique investment opportunity within the stable and growth-oriented FMCG sector. By understanding the features, benefits, and how to invest in mutual funds, Indian investors can consider adding them to their investment portfolio for diversification and potential growth. Like any investment, it is essential to conduct thorough research and consider your financial goals and risk appetite before investing in FMCG mutual funds. Pick from over a thousand mutual funds on the Bajaj Finserv Platform and begin your investment journey.
