HDFC mutual funds have launched Non Cyclical consumer fund. This NFO would open for subscription on 23rd June and closes on 7th July, 2023. It would reopen after 5 business days after the initial NFO period. Should you invest in HDFC Non-Cyclical Consumer Fund? What are the risk factors investors should consider before investing in such NFOs.
Also Read: Can we create Rs 100 Crore wealth with Rs 50,000 SIP in mutual funds?
What is non-cyclical consumer theme?
The non-cyclical consumer theme refers to industries or sectors that are less influenced by economic cycles and are considered relatively stable or resilient regardless of the overall economic conditions. Non-cyclical consumer goods and services are often in demand regardless of economic downturns because they fulfill basic needs or provide essential products or services. Examples of non-cyclical consumer sectors include healthcare, food and beverages, household products, utilities, and essential services like telecommunications. These industries tend to be less sensitive to changes in consumer spending and can provide a more stable investment option during times of economic uncertainty.
HDFC Non-Cyclical Consumer Fund – NFO issue Details
| NFO Period | 23rd June to 7th July, 2023. |
| Scheme reopens for continuous purchase/sale | Within 5 business days |
| Minimum Application Amount | Rs 100 and in multiples of Rs 1 thereafter |
| Minimum SIP | Rs 100 for 6 months |
| NAV of the fund | Rs 10 during NFO period |
| Entry Load | Nil |
| Exit Load | 1% for redemption within 365 days |
| Risk | Very High Risk |
| Benchmark | NIFTY India Consumption TRI |
| Fund Manager | Amit Sinha |
Positive Factors of investing in HDFC Non-Cyclical Consumer Fund
Investing in mutual funds that focus on the non-cyclical consumer theme can offer several benefits. These are generic advantages and may apply to all funds investing in such themes.
Stability and Defensive Nature: Non-cyclical consumer sectors are known for their stability and defensive characteristics. These sectors typically consist of companies that offer essential products or services that people need regardless of the economic conditions. Investing in mutual funds that target these sectors can provide stability to your investment portfolio, as they tend to be less affected by economic downturns.
Consistent Income and Dividends: Many non-cyclical consumer companies have a history of generating consistent income and paying dividends to their shareholders. Mutual funds that invest in these sectors can provide a regular income stream through dividend payments, making them attractive for investors seeking a steady income.
Potential for Long-Term Growth: While non-cyclical consumer sectors may be less volatile compared to cyclical sectors, they can still offer opportunities for long-term growth. Consumer trends and demographics can drive the demand for essential products and services over time, leading to potential capital appreciation for the companies operating in these sectors. By investing in mutual funds that focus on non-cyclical consumer themes, you can participate in this potential growth.
Diversification: Investing in mutual funds allows for diversification across a range of non-cyclical consumer companies. This diversification helps reduce the risk associated with investing in individual stocks and provides a broader exposure to the non-cyclical consumer theme.
Negative or Risk Factors of investing in such funds
While investing in mutual funds that focus on the non-cyclical consumer theme can have its advantages, it’s essential to consider the potential risk factors associated with these investments:
Economic Downturns: Although non-cyclical consumer sectors are considered more stable, they are not entirely immune to economic downturns. During severe economic contractions, even essential products and services may experience reduced demand, which can impact the performance of non-cyclical consumer companies and the mutual funds that invest in them.
Regulatory Changes: Non-cyclical consumer sectors are subject to various regulations and policies that can impact their operations and profitability. Changes in regulations, such as stricter compliance requirements or pricing controls, can affect the financial performance of companies within these sectors and, consequently, the performance of mutual funds focused on them.
Competitive Landscape: Non-cyclical consumer sectors can be highly competitive, with multiple companies vying for market share. Increased competition, price wars, or disruptive innovations from competitors can affect the profitability and growth potential of companies within these sectors, which can impact the performance of mutual funds investing in them.
Changing Consumer Preferences: Consumer preferences and trends can shift over time, impacting the demand for specific non-cyclical consumer products or services. Mutual funds focused on these sectors may be exposed to the risk of investing in companies that fail to adapt to evolving consumer preferences, resulting in decreased demand and potential negative effects on fund performance.
Company-Specific Risks: Each company within the non-cyclical consumer sectors may have its own set of risks, such as management issues, product recalls, supply chain disruptions, or legal challenges. These company-specific risks can impact the performance of the mutual fund if it has a significant allocation to those specific companies.
Market Volatility: While non-cyclical consumer sectors are generally considered less volatile than cyclical sectors, market volatility can still affect the performance of mutual funds in these sectors. Factors such as interest rate changes, geopolitical events, or investor sentiment can influence the overall market and, consequently, the performance of non-cyclical consumer mutual funds.
Performance of Consumption Theme based mutual funds
Currently there are consumption theme mutual funds existing and here is the performance in the last 3 to 10 years. These funds generated 10% to 35% annualised returns.
| Scheme Name | 3 Yrs | 5 Yrs | 10 Yrs |
|---|---|---|---|
| Nippon India Consumption Fund | 30% | 18% | 15% |
| Canara Robeco Consumer Trends Fund | 28% | 16% | 18% |
| Mirae Asset Great Consumer Fund | 29% | 16% | 19% |
| Aditya Birla Sun Life India GenNext Fund | 26% | 15% | 18% |
| SBI Consumption Opportunities Fund | 35% | 15% | 16% |
| Tata India Consumer Fund | 25% | 12% | – |
| Nippon India ETF Nifty India Consumption | 20% | 11% | – |
| Sundaram Consumption Fund | 23% | 10% | 16% |
| UTI India Consumer Fund | 19% | 10% | 12% |
| Baroda BNP Paribas India Consumption Fund | 24% | – | – |
| ICICI Prudential Bharat Consumption Fund | 23% | – | – |
Also Read: Mutual Funds that performed well in 9 out of 12 months
Should you invest in HDFC Non-Cyclical Consumer Fund?
Investing in the HDFC Non-Cyclical Consumer Fund, as a new fund offer, has its pros and cons.
On the positive side, this mutual fund focuses on non-cyclical consumer sectors, which tend to be more resilient during economic downturns. It allows investors to diversify their portfolios and potentially benefit from the stable growth of essential consumer goods and services.
However, as a new fund, it lacks a performance history, making it difficult to assess its potential returns. Economic downturns, regulatory changes introducing compliance requirements, changing consumer preferences and trends can reduce demand for specific products or services, posing a risk to fund performance.
Investors should carefully consider the fund’s investment strategy and risk factors before making investment decisions.
Source Data: HDFC Non Cyclical Fund SID from SEBI website
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