With GST Cuts And Festive Demand Rising, Is Now The Right Time To Invest In Consumption Funds? | Savings and Investments News

Consumption funds are thematic equity schemes that invest predominantly in companies benefiting from India’s domestic consumption—everything from daily staples to telecom, autos, retail and services.

GST 2.0 Rollout: Consumption funds, a thematic equity scheme, are in the spotlight of investors after GST 2.0 rollout. A major overhaul in the country’s indirect taxation system has brought big relief to Indian consumers. With the drop of GST on essential goods to 5 per cent or nil, prices from groceries to electronics are set to drop from Monday, September 22, making it cheaper and affordable for buyers. The move is seen as a masterstroke by the Indian government to boost consumption and spur economic growth.

Consumption funds are back in focus as investors bet that a GST-driven boost in consumer demand will lift company revenues and, in turn, deliver stronger returns through rising share prices.

What Are Consumption Funds?

Consumption funds are thematic equity schemes that invest predominantly in companies benefiting from India’s domestic consumption—everything from daily staples to telecom, autos, retail and services. “Unlike diversified equity funds that spread across all sectors, consumption funds are narrower by design, so returns can be more theme‑driven,” said Devender Singhal, Fund Manager, Kotak Mutual Fund.

Who Should Bet For Consumption Funds?

Singhal argued that consumption funds are best suited for investors who have three things: conviction, time, and balance.

He explained each of the points:

First, conviction in India’s long‑term consumption story—urbanization, rising incomes, premiumization, and digital adoption.

Second, a long investment horizon, ideally three years or more, because this is a thematic fund. It can outperform in upcycles but also see drawdowns when discretionary demand slows.

Third, balance in the portfolio—consumption funds work best as a satellite allocation. They complement diversified equity funds rather than replace them.

He added that investors comfortable with short‑term volatility, who want focused exposure to India’s domestic demand engine, and who can SIP through cycles, are the right fit.

Some Consumption Funds, Returns and NAV

Will GST 2.0 Benefit Consumption Funds?

Singhal saw that GST 2.0 would act nother catalyst for acceleration in consumption adding to existing catalysts like low food inflation, income tax cuts and good monsoon & agri production. “Overall, GST rate cut is a clear positive for the consumption sector—directly benefiting select companies and indirectly supporting the broader consumption,” he added.

Moreover, the anticipated implementation of the 8th Pay Commission in 2026 is expected to be another positive catalyst.

“The commentary from most corporates have been suggesting of green shoots of recovery in consumption. A good monsoon, tax cuts, interest rate cut and the benefits to the bottom end of the pyramid by state and central government in terms of direct cash benefits were all suggestive of a good upcoming festive season. The recent rationalisation of GST rates with a sharp cut for across most consumption items shall aid to further boost the demand in our view,” he added.