FMCG (fast moving consumer goods) mutual fund (MF) schemes have given good performance over different time periods in the past. This has resulted in the revival of an old topic of debate, i.e., should normal investors put their money into FMCG schemes?
The category of FMCG mutual fund has consistently delivered good returns over the time periods of 1, 3, 5, and 10 years. Some reports indicated that a rise of 11 to 12 percent in revenues will be observed in this sector in the 2019 fiscal year. Such a rise will be an increase of 300 to 400 basis points from 2018 fiscal year’s 8 percent revenue growth.
It may however be noted that despite the continuous good performance of FMCG mutual fund schemes, MF advisors are not too keen on retail investors investing heavily in this category. They are of the opinion that despite their consistency, FMCG funds are basically sector-linked funds and hence not more than 10 percent of such schemes should be present in the MF portfolio of retail investors.
Fund houses do believe that rural consumption is going to increase in the country and that would be great for the growth prospects of the FMCG sector. However, it does not mean that investors have to put their money into specific MF schemes. Even though it is predicted that the sector will stay solid in India over the coming years, it is important to know that FMCG schemes are meant to be the icing on the cake and the topping on your investment portfolio, not the cake itself. FMCG funds will deliver solid returns during the high and lows in the market. Thus, even though consistent performance will be delivered by it during the low (bear) phase, it will miss the market rally during a bull run.
Performance of FMCG sector funds
Over the past 1 year, FMCG mutual fund category has delivered returns of over 21.50 percent. Returns of the category over the 3 year period have been over 16.50 percent; more than 16.60 percent in 5-year period; and nearly 19.50 percent over the 10 year period. The return of the Nifty FMCG Index over the past 1 year has been nearly 13 percent, over 12.15 percent in 3-year period, and over 10.55 percent in 5 year period. In India, only two MF schemes have investments in the FMCG sector, namely, ICICI Prudential FMCG Fund and SBI Consumption Opportunities Fund (previously known as SBI FMCG Fund). Both the funds have delivered consistently over a prolonged period of time.
FMCG is categorized under the defensive sector group such as pharmaceuticals. Different items used by people on a daily basis are categorized in the FMCG group. Some well known FMCG sector companies in India are ITC, Coca-cola, and HUL, etc. The FMCG sector in India is worth a massive INR 500 billion and is a vital contributor to the GDP growth of the country.
MF advisors are of the opinion that the FMCG sector will continue to be a solid story in the future. They however believe that individual investors should not put their money into sector specific schemes as their fund manager is there to manage their MF portfolio. According to them, addition of extra schemes does not seem like a sensible option for small investors. Individuals who want to maintain a diversified fund portfolio need to know that their fund manager is doing that already and is continuously adding all the top performing sectors in the fund portfolio. It may be noted that the fund manager of a diversified MF can alter the allocation whenever the performance of a sector decreases. Such freedom is not available in sector specific mutual fund schemes.
Some fund advisors however state that individuals with deeper pockets can still choose to invest in FMCG funds. Investors who have a large corpus and are meeting their financial goals with investments across different market caps, can opt to invest in an FMCG mutual fund scheme for good consistent yields in the long term. This is not applicable for small investors; they should remain invested in diversified mutual funds. People who are betting on such funds for diversification need to remain invested in them for a minimum time period of 5 years.