Nippon India Consumption Fund: Wealth creation in the consumption theme

Domestic consumption is one of the most important themes of the India Growth Story. India enjoys a demographic advantage as far as this theme is concerned. We have a young population; the average age is just 29 years (Source: Ministry of External Affairs). As per National Family Health Survey 2021, 88% of the population is below the age of 60 and more than half of the population is below 30. Per capita income is also rising and has already crossed the $2,000 mark. Favourable demographics and rising per capita income are primary demand drivers of our consumption growth story.

Growth potential in the consumption theme

India’s consumption expenditure doubled in the last 10 years and was $2 Trillion in 2021 (source: World Bank). With favourable demographics and per capita income estimated to be growing to $12,000 by 2036, the growth potential of consumption is huge. With rising per capita income, we are seeing trends of premiumisation in our consumption market. Historical data shows that, consumption has been a very attractive investment theme for long term investors. In the last 10 years, Nifty India Consumption TRI has given 14.9% CAGR returns (source: National Stock Exchange, as on 16^th November 2022). Consumption is also one of the most popular thematic mutual fund categories with 12 schemes in this category. However, one thematic consumption fund stands out as a strong performer in the last 5 years - Nippon India Consumption Fund has been the best performing consumption fund for the last 3 years.

About Nippon India Consumption Fund

Nippon India Consumption Fund was launched in 2004 and has given more than 15% CAGR returns since inception. The expense ratio of the fund is 2.65%. The chart below shows the growth of Rs 10,000 lump sum investment in Nippon India Consumption Fund in the last 5 years compared to the Nifty 50 TRI. The scheme gave 15.31% CAGR returns versus 13.91% CAGR returns by Nifty 50 TRI. You can see that the Nippon India Consumption Fund was able to create alpha for investors.

Source: Advisorkhoj research

Rolling returns

The chart below shows the 3 year rolling returns of Nippon India Consumption Fund over the last 5 years. We are showing 3 year rolling returns because we think that you need to have minimum 3 year investment tenure for this scheme. You can see that Nippon India Consumption Fund outperformed the category average by a significant margin over the last 5 years. You can also see that the scheme was able to generate double digit returns over 3 year investment periods quite consistently (more than 87% of the instances) across different market conditions in the last 5 years. Performance consistency is one the attributes of a good fund manager.

Source: Advisorkhoj research

Investment philosophy of Nippon India Consumption Fund

• The scheme has a focussed approach to investing in leaders or potential leaders that are likely to benefit directly or indirectly from domestic consumption led demand.


• The scheme is well diversified across key segments like Consumer Non-Durables, Media & Entertainment, Automobile, Healthcare Services, Pharmaceuticals, etc., driven by relative attractiveness of opportunities and valuations.


• The scheme has a flexi cap structure, allowing it to participate across market capitalization segments.


• The scheme invests in companies with strong business model that allows for good return on Equity (ROE) generation.


• The scheme invests in businesses with focus on sustainable profitable growth.

Wealth creation by Nippon India Consumption Fund

The chart below shows the growth of Rs 10,000 monthly SIP in Nippon India Consumption Fund since its inception in 2004. With a cumulative investment of just Rs 21.8 lakhs in the last 18 years, you could have accumulated a corpus of nearly Rs 90 lakhs at an XIRR of nearly 14%. You can also see that even over very long tenure, the scheme was able to generate market beating returns.

Source: Advisorkhoj research

Is this a good time to invest in Nippon India Consumption Fund?

• Despite high inflation, the consumption theme has outperformed the market in India. According to figures released by the Confederation of All Indian Traders, Diwali sale this year was up by 40% compared to last year.


• Inflation in India is cooling slowly and steadily. Retail inflation in October moderated to 6.77% in October from 7.41% in the prior month. Cooling inflation will provide a further boost to comsumption in India.


• Cooling inflation may also lead to softening of RBI’s monetary policy. Historical data shows that, lower interest rates spur consumer spending.


• With repeated COVID related lockdowns in China and disruptions in supply chains, Indian manufacturers may benefit more from the consumption growth in India.


• After many years, we are seeing early signs of private sector capex revival in India. This will have a trickle-down effect on private consumption in medium to long term.


• Finally, we see consumption as a long term secular growth theme across market cycles. While valuations may seem rich at certain point in time, high earnings growth leads to wealth creation in the long term.

Who should invest in Nippon India Consumption Fund?

• Investors seeking capital appreciation over long investment horizons


• Investors with high risk appetites


• Investors with long investment tenures – you need to have minimum 3 year investment horizon for this scheme


• Investors should have at least 70 – 80% of their equity portfolios in diversified equity funds – this will be the core of your equity portfolio. The tactical portion of your equity portfolio (20 – 30%) can be in thematic / sectoral funds. Since the consumption theme is integral to the India growth story, a significant part of your tactical investments can be in consumption


• You can invest in Nippon India Consumption Fund from your regular savings through the SIP route


• You can also invest in lump sum provided you remain invested for minimum 3 years. If you are worried about market volatility due to uncertainties about the interest rate trajectory, you can invest in Nippon India Consumption Fund through 3 – 6 months STP from Nippon India Liquid Fund, Nippon India Ultra Short Duration Fund or Nippon India Money Market Fund.

Investors should consult with their financial advisors if Nippon India Consumption Fund is suitable for their long term investment needs.