Are consumption funds worth the hype?

Summary: Consumption funds are selling a powerful narrative built on India’s spending story. But narratives can change. Here’s why it pays to look deeper. A new crop of consumption funds has popped up in the last year. Seven funds and two ETFs. Some of the largest names in the industry, including Edelweiss, LIC and Motilal Oswal, have joined this wave with confident pitches. In total, this category, comprising 34 funds, manages over Rs 42,000 crore of corpus. At first glance, the promise feels irresistible. Consumption funds, on average, have delivered 16 per cent annualised returns over any three-year period in the post-Covid era. The theme taps into multiple structural stories: urbanisation, modern retail, the rise of aspirational households and the spending power of younger consumers. So, do any of these funds deserve your attention? Performance Over five-year rolling periods since inception, a few funds managed consistent outperformance, but most didn’t. Of the funds with at least a 15-year history, only two out of six funds outperformed their benchmark 65 per cent of the time. This is a threshold that typically signals durable long-cycle performance. Moreover, in many cases, most of the outperformance is