Which FMCG Mutual Fund is Right for You? Nippon India Consumption Fund vs Canara Rob Consumer Trends Fund

October 7, 2024 Mutual Fund

The Indian Fast-Moving Consumer Goods (FMCG) sector is one of the largest and most dynamic industries in India, accounting for nearly 50% of the consumer goods market. It encompasses products such as food and beverages, personal care items, and household products.

In FY2023, the FMCG market size was estimated at approximately USD 110 billion, and it is expected to grow at a compound annual growth rate (CAGR) of 14.9% between 2022 and 2027, driven by a rising middle class, increasing urbanisation, and evolving consumer behaviour.

As of mid-2024, the Indian FMCG sector is showing signs of recovery following inflationary pressures and supply chain disruptions caused by global events like the Russia-Ukraine conflict and the COVID-19 pandemic. While rural demand was initially subdued due to inflation, urban demand remained resilient, and rural markets are expected to pick up in the coming quarters, supported by government policies aimed at boosting rural incomes.

[Read: FMCG Mutual Funds: A Smart Way to Benefit from India’s Large Consumer Market]

E-commerce platforms and online retailing have rapidly expanded in the FMCG space. The share of e-commerce in FMCG sales is expected to increase significantly from 7% in 2022 to 20% by 2027. FMCG companies are increasingly investing in digital channels to tap into this fast-growing market.

Consumers are increasingly opting for environmentally friendly, organic, and health-oriented products. FMCG companies are adjusting their portfolios to cater to these preferences, which are expected to grow steadily as awareness around health and sustainability rises.

In the future, the Indian FMCG sector is expected to continue its strong growth trajectory, driven by innovations in product offerings, distribution, and sustainability. The sector’s rapid urbanisation and expanding e-commerce channels are set to provide additional avenues for growth, with the rural market also playing a crucial role as demand rebounds.

Nifty India Consumption Index

The Nifty India Consumption Index is a key barometer for India’s consumption story, reflecting the performance of leading companies from FMCG, automobiles, healthcare, and other consumption-related sectors. With stable demand, rising disposable incomes, and positive economic trends, the index is well-positioned to continue delivering growth in 2024 and beyond.

Data as of October 04, 2024
Do note past performance is not an indicator of future returns
(Source: ACE MF, data collated by PersonalFN Research) 

The index has delivered a robust return over the past year, reflecting the resilience of the consumption sector amidst economic fluctuations. Companies like Hindustan Unilever, ITC, and Nestle India contribute significantly to the index, which is driven by steady demand for essential consumer products.

As India continues to grow and develop, the index is likely to remain a key benchmark for investors seeking exposure to the consumption story in India. Given that, FMCG mutual funds have emerged as attractive investment options for investors seeking to capitalise on the growth potential of the FMCG sector.

Note: In my previous article, I have compared the two top-performing FMCG mutual funds with an in-depth analysis of their investment strategy, asset allocation, sector-wise holding, risk-reward profile, etc. You may consider reading ‘Best FMCG Mutual Funds: SBI Consumption Opportunities Fund vs. Mirae Asset Great Consumer Fund’

This article offers an in-depth comparison of two prominent FMCG mutual funds in India: Nippon India Consumption Fund vs Canara Robeco Consumer Trends Fund, to aid you in capitalise on the sector’s current momentum.

# – Nippon India Consumption Fund

Nippon India Consumption Fund is an open-ended equity scheme that belongs to Nippon India Mutual Fund. It is a well-established sectoral fund focused on the Indian FMCG (Fast-Moving Consumer Goods) sector. Launched in September 2004, the fund has a long track record and has been a popular choice among investors seeking exposure to the FMCG sector.

The Nippon India Consumption Fund aims to provide investors with long-term capital appreciation by investing predominantly in equity and equity-related securities of companies in the consumption and consumption-related sectors. Currently, the fund holds an AUM of Rs 1,700.54 crores.

# – Canara Robeco Consumer Trends Fund

Canara Robeco Consumer Trends Fund is an open-ended equity scheme and belongs to Canara Robeco Mutual Fund. It is another prominent sectoral fund focusing on the Indian FMCG sector. Launched in September 2009, the fund has quickly gained popularity due to its strategic approach to investing in the FMCG space and currently holds an AUM of Rs 1,759.96 crores.

The Canara Robeco Consumer Trends Fund aims to provide capital appreciation by investing primarily in equities of companies that stand to benefit from the growing consumption demand in India. The fund focuses on sectors such as consumer staples, consumer discretionary, healthcare, automobiles, financials, and retail, among others.

Investment Style and Philosophy:

Nippon India Consumption Fund: follows an investment philosophy centred around India’s consumption story, focusing on sectors that benefit from rising domestic consumption. The fund invests across diverse industries such as consumer durables, FMCG, automobiles, retail, and services that cater to the growing demand within the Indian market.

Its investment strategy emphasises identifying long-term growth opportunities within consumption-driven companies that demonstrate robust fundamentals and scalable business models. Nippon India Consumption Fund tends to favour companies that benefit from rising disposable incomes, favourable demographic shifts, and increasing consumer spending.

Canara Robeco Consumer Trends Fund: operates with a broader thematic focus, not limiting itself to traditional consumption sectors but also looking at emerging consumption trends in technology, e-commerce, and lifestyle. This fund’s philosophy revolves around capturing growth in companies that cater to evolving consumer preferences, including digitalisation, health and wellness, and new-age consumption patterns.

By identifying businesses that align with changing consumer behaviours, the Canara Robeco Consumer Trends Fund aims to generate capital appreciation by investing in companies poised for long-term growth.

• Performance Comparison: Rolling Returns

  Scheme Name	Absolute (%)	CAGR (%)
  	1 Year	3 Years	5 Years	7 Years	10 Years
  Nippon India Consumption Fund(G)-Direct Plan	35.19	26.43	24.35	17.30	16.74
  Canara Robeco Consumer Trends Fund(G)-Direct Plan	33.14	21.97	22.16	19.12	20.04
  Category Average – FMCG	30.46	22.54	20.19	17.06	17.51
  Benchmark – Nifty India Consumption – TRI	32.74	20.53	17.88	15.45	15.41

  Data as of October 04, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  The Nippon India Consumption Fund and the Canara Robeco Consumer Trends Fund have shown strong performance across various periods, reflecting their robust strategies and the potential of the consumption sector in India.

  Over the last year, Nippon India Consumption Fund delivered a notable absolute return of 35.19%, well above the category average of 30.46% and the Nifty India Consumption TRI benchmark's 32.74%. Over a three-year horizon, its CAGR of 26.43% significantly surpasses the benchmark's 20.53% and category average of 22.54%, indicating consistent outperformance. This superior performance over extended periods highlights the fund's ability to tap into growth-driven consumption sectors and capitalise on India's rising consumption trends. Its five-year CAGR of 24.35% also reflects sustained growth, outperforming both the category and benchmark by a wide margin.

  The Canara Robeco Consumer Trends Fund, while also exhibiting strong returns, trails slightly behind the Nippon India Consumption Fund. Its three-year CAGR of 21.97% and five-year CAGR of 22.16% also show solid growth but are marginally lower than the Nippon India fund and the category average. However, over the longer seven-year and ten-year periods, the Canara Robeco fund has delivered a higher CAGR of 19.12% and 20.04%, respectively, outperforming both its peers and the benchmark, indicating stronger resilience in longer-term investments.

  Both funds have outperformed the benchmark, demonstrating their potential for growth within India's evolving consumption landscape.

  Do note the fortunes of these funds are heavily tied to the performance of the Indian FMCG sector. Any headwinds faced by the sector can significantly impact their NAV. Moreover, past performance should not be the only element, it's important to note that one may consider other factors like portfolio holdings, risk profile, and investment philosophy before making a decision.

  [Read: Mutual Funds Are Betting Big on These Sectors: Are You Missing Out?]

• Portfolio Composition: Asset Allocation of Schemes

  The asset allocation between the Canara Robeco Consumer Trends Fund and the Nippon India Consumption Fund shows a notable difference in their investment strategies, particularly in their focus on market capitalisation segments.

  Scheme Name	Large Cap %	Mid Cap %	Small Cap %
  Canara Robeco Consumer Trends Fund	56.07	20.02	20.64
  Nippon India Consumption Fund	64.76	16.03	17.63

  Data as of September 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  Both Canara Robeco Consumer Trends Fund and Nippon India Consumption Fund focus on investing in companies under the FMCG segment, but their approach to diversification within that sector differs.

  Nippon India Consumption Fund exhibits a higher allocation to large-cap stocks, with 64.76% of its portfolio invested in well-established companies. The fund's mid-cap allocation stands at 16.03%, indicating a moderate exposure to companies with growth potential but slightly higher risk than large-caps. Its small-cap allocation is at 17.63%, which suggests that the fund is willing to take calculated risks by investing in smaller, potentially high-growth companies that can benefit from India's rising consumption story.

  In comparison, Canara Rob Consumer Trends Fund has a more balanced approach between large-cap and mid- to small-cap investments. While 56.07% of its portfolio is allocated to large-cap stocks, slightly lower than Nippon India's, this shows the fund's preference for stability with a more diversified risk profile. Its mid-cap allocation of 20.02% is notably higher than Nippon India's, indicating a stronger tilt towards companies with higher growth potential but also with greater volatility.

  Additionally, the small-cap exposure of 20.64% is marginally higher than Nippon India's, reinforcing the fund's strategy to tap into emerging companies poised for growth in niche or new-age consumption sectors.

  Overall, the asset allocation of Nippon India Consumption Fund reflects a more conservative stance, prioritising large-cap exposure for stability while maintaining a balanced exposure to mid-and small-cap stocks for growth opportunities.

  In contrast, the Canara Robeco Consumer Trends Fund adopts a slightly more aggressive strategy, with higher allocations to mid- and small-cap stocks. It indicates its willingness to seek out more growth-oriented companies that may benefit from evolving consumer trends in sectors like technology, health, and lifestyle.

  [Read: Investing in High-Risk Mutual Funds: A Bold Approach]

• Market Volatility: Risk Profile of Schemes

  Investing in sectoral funds may offer benefits from the growth potential of the underlying sectors like – FMCG; however, understanding the scheme's risk-reward profiles is crucial before investing.

  Risk Ratio	Canara Robeco Consumer Trends Fund	Nippon India Consumption Fund
  Standard Deviation (3 Year)	14.13	13.09
  Sharpe	0.32	0.41
  Sortino	0.65	0.89

  Data as of September 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  An investment with high volatility is considered riskier than an investment with low volatility; the higher the Standard Deviation, the higher the risk. Canara Robeco Consumer Trends Fund has a slightly higher Standard Deviation of 14.13 compared to 13.09 for the Nippon India Consumption Fund. This indicates that the Canara Robeco Fund experiences higher fluctuations in its returns, making it a relatively more volatile investment.

  Nippon India Consumption Fund, with a lower Standard Deviation, shows more stability in its returns, suggesting it might be less prone to sharp short-term movements.

  The Sharpe Ratio, which adjusts a fund's return for the risk taken, is higher for the Nippon India Consumption Fund at 0.41 compared to 0.32 for the Canara Robeco Consumer Trends Fund. A higher Sharpe Ratio indicates that the Nippon India Consumption Fund is delivering better risk-adjusted returns, meaning investors are compensated more for the risk they are taking compared to Canara Robeco's fund.

  Similarly, the Sortino Ratio, which focuses on downside risk (i.e., negative volatility), shows Nippon India Consumption Fund with a more favourable ratio of 0.89, compared to 0.65 for the Canara Robeco Consumer Trends Fund. This suggests that Nippon India Consumption Fund has been more efficient in managing downside risk, offering more stable returns during periods of market stress.

  Remember, this comparison is just to give you an idea about the risk profile of the two best FMCG mutual funds. Consider your risk tolerance and investment goals to determine which fund aligns better with your investment strategy.

• Top Holdings of the Schemes:

  The Nippon India Consumption Fund and the Canara Robeco Consumer Trends Fund are both focused on investing in companies that stand to benefit from increased consumer spending and consumption patterns in India.

  However, their sector allocation and top holdings approaches reveal distinct strategies for capturing this consumer growth potential.

  Nippon India Consumption Fund		Canara Robeco Consumer Trends Fund
  Company	% Assets	Company	% Assets
  Bharti Airtel Ltd.	7.66	ITC Ltd.	6.06
  ITC Ltd.	7.08	Bharti Airtel Ltd.	4.54
  Hindustan Unilever Ltd.	6.78	HDFC Bank Ltd.	4.20
  Godrej Consumer Products Ltd.	5.23	Zomato Ltd.	3.91
  Avenue Supermarts Ltd.	4.55	Trent Ltd.	3.66
  United Breweries Ltd.	4.32	Bajaj Auto Ltd.	3.06
  Mahindra & Mahindra Ltd.	4.29	Godrej Consumer Products Ltd.	2.95
  Bajaj Auto Ltd.	4.16	United Breweries Ltd.	2.70
  Jubilant FoodWorks Ltd.	3.75	Dabur India Ltd.	2.66
  Berger Paints India Ltd.	3.59	KEI Industries Ltd.	2.66

  Data as of September 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  The Nippon India Consumption Fund has a concentrated focus on companies tied to India's domestic consumption story, with top holdings reflecting major players in consumer-related sectors. Bharti Airtel Ltd., the top holding at 7.66%, underscores the fund's inclusion of telecommunication services, an essential part of modern consumption trends driven by digital and mobile adoption.

  Companies like Jubilant FoodWorks Ltd. (3.75%) and United Breweries Ltd. (4.32%) further emphasise their investment in sectors benefiting from rising discretionary spending among Indian consumers. The diversified sector allocation aims to capture multiple facets of India's consumption story, ranging from essential goods to lifestyle and automotive sectors.

  The Canara Robeco Consumer Trends Fund presents a broader exposure to consumption-oriented companies, with top holdings also reflecting a diverse mix. ITC Ltd. (6.06%) and Bharti Airtel Ltd. (4.54%) overlap with the Nippon India Consumption Fund, indicating shared optimism about staples and telecom.

  This fund's sector allocation captures a wide array of consumption trends, including digital consumption, financial services, and new-age sectors. Overall, the Canara Robeco Consumer Trends Fund balances between traditional consumption sectors and emerging trends that reflect shifting consumer preferences.

  This subtle difference in sector focus within the FMCG segment could influence the funds' performance based on how those specific stocks perform.

• Expense Ratio of the Schemes

  When comparing thematic funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of Nippon India Consumption Fund vs Canara Robeco Consumer Trends Fund:

  Scheme Name	Direct Plan Expense Ratio	Regular Plan Expense Ratio
  Nippon India Consumption Fund	0.77%	2.08%
  Canara Robeco Consumer Trends Fund	0.81%	2.08%

  Data as of September 30, 2024
  Do note past performance is not an indicator of future returns
  The securities quoted are for illustration only and are not recommendatory.
  (Source: ACE MF, data collated by PersonalFN Research)  

  As you can see, the Nippon India Consumption Fund has a significantly lower expense ratio for direct plans as compared to the Canara Robeco Consumer Trends Fund. Do note that even a small percentage point difference in the expense ratio may accumulate over time and impact your returns.

  However, both the schemes have a similar expense ratio under the regular plan; Nippon India Consumption Fund's lower expense ratio could be considered a cost-effective option for many investors. Remember that a lower expense ratio translates to potentially higher returns over time, but a lower expense ratio should not be the only factor to be considered while investing in sectoral funds.

  [Read: Thematic Funds Become Market Leaders with Record-High AUM Growth]

• Suitability of Investors to the Schemes:

  Nippon India Consumption Fund is suitable for investors with a long-term investment horizon and looking to capitalise on India's consumption-driven economic growth. This fund is ideal for those who believe in the sustained potential of traditional consumption sectors like FMCG, automobiles, and consumer durables, which benefit from increasing disposable incomes and a growing middle class.

  Given the fund's concentrated exposure to consumption-driven sectors, it is well-suited for investors with a moderately high-risk tolerance, as these sectors can be sensitive to changes in consumer spending patterns, inflation, and economic cycles.

  Canara Robeco Consumer Trends Fund, with its broader investment mandate, is suitable for investors who are looking to capitalise on both traditional consumption sectors and new-age consumer trends like e-commerce, digitalisation, and lifestyle shifts.

  This fund is ideal for more aggressive investors who can handle higher volatility and are looking for a thematic play that captures not only established consumption sectors but also future trends in the consumer space. Investors with a strong belief in the evolving consumer landscape, driven by technology and innovation, would find this fund a good fit for their portfolio.

  However, note that these funds focus on carrying a concentrated portfolio related to a specific sector. Ensure they complement your existing portfolio allocation to spread risk.

  The FMCG sector is highly competitive, with numerous players vying for market share. Companies need to differentiate themselves through innovation, branding, and customer experience to maintain a competitive edge. FMCG companies need to stay informed of regulatory changes related to product safety, labelling, and environmental standards.

  Despite these challenges, the sector's ongoing emphasis on innovation, sustainability, and consumer-focused strategies positions it strongly for future growth.

To conclude…

The Nippon India Consumption Fund and the Canara Robeco Consumer Trends Fund offer distinct approaches to capturing the benefits of India’s expanding consumer market.

The Nippon India Consumption Fund provides a balanced investment strategy with a focus on established companies across various consumption segments. On the other hand, the Canara Robeco Consumer Trends Fund adopts a more aggressive growth strategy, targeting high-growth companies within the consumption sector.

Ultimately, the choice between these funds should align with your investment horizon, goals and risk tolerance. Whether you prefer the stability of Nippon India’s approach or the growth potential of Canara Robeco’s strategy, both funds offer valuable exposure to India’s thriving consumption sector.

Disclaimer: PersonalFN does not receive any monetary compensation from the fund house or scheme names stated in the article.

This article first appeared on PersonalFN here