Mutual Funds: Why should you include manufacturing funds in your portfolio?

Manufacturing-focused mutual funds in India have shown strong performance, outperforming major market indices. These funds invest in companies across market capitalizations within the manufacturing industry, offering diversification and active portfolio management.

Abeer Ray
Published3 Jun 2024, 09:58 AM IST
Investing in manufacturing mutual funds can be beneficial as India aims to strengthen its manufacturing sector, offering growth opportunities.
Investing in manufacturing mutual funds can be beneficial as India aims to strengthen its manufacturing sector, offering growth opportunities.

Mahindra Manulife Mutual Fund recently launched the Mahindra Manulife Manufacturing Fund, which pursues long-term capital appreciation by investing primarily in equities and equity-related securities of manufacturing companies. This fund has a ‘Very High’ risk rating, so consider your risk tolerance before investing. This takes us to an essential question, "Is it worth investing in manufacturing mutual funds?"

Mutual funds that concentrate on the manufacturing sector have performed well, as India quickly becomes a global manufacturing powerhouse. There are currently nine manufacturing-focused mutual fund schemes available in India, four of which were recently introduced in the market.

Mutual funds with a manufacturing theme invest in companies within the manufacturing industry. The investment strategy is straightforward. Similar to thematic mutual funds, these funds mainly make investments in businesses that produce goods like automobiles, chemicals, textiles, medications, and more. At least 80% of the fund’s assets must be equity shares or equity-linked instruments from specific manufacturing companies, per SEBI regulations. Since market capitalization is not a restriction, fund managers can invest in the manufacturing sector across market capitalizations (large-cap, mid-cap, and small-cap), giving them exposure to businesses with different growth prospects.

India’s current government is attempting to make the nation self-sufficient by making it the global centre of manufacturing. Additionally, production-linked incentives (PLIs) are greatly boosting output in many industries, such as electronics, textiles, pharmaceuticals, and automobiles.

This explains why more and more people are thinking about making investments in manufacturing mutual funds. They assert that the funds in this category might benefit from the industry’s overall growth if the manufacturing sector does well.

This fund plan, which falls under the manufacturing theme, offers some diversification over single-stock investing by investing in businesses from various industry segments. A fund manager chooses and keeps an eye on manufacturing companies to actively manage the portfolio.

How have manufacturing-themed mutual funds performed?

The proof of the pudding lies in the eating. Several sources suggest that manufacturing-themed mutual funds have beaten larger market indices such as the Nifty 500 and Nifty 500 Multicap throughout a range of timeframes.

Take, for example, the Kotak Manufacture in India Fund that delivered 32.02 per cent returns in two years. Likewise, the Aditya Birla Sun Life Manufacturing Equity Fund yielded 19.05 per cent returns and ICICI Prudential Manufacturing Fund leading at 26.96 per cent returns in five years.

The manufacturing sector’s general state has a significant impact on these funds’ performance, just like it does on other thematic mutual funds. The funds might perform poorly if the industry declines.

As these funds are still in their infancy, there isn’t much information available about their long-term performance. In addition, past results do not guarantee future results. This implies that investors should exercise caution when allocating their funds.

 

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First Published:3 Jun 2024, 09:58 AM IST
HomeMutual FundsMutual Funds: Why should you include manufacturing funds in your portfolio?

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