Manufacturing Mutual Funds: What Makes it a Good Option for Your Portfolio?

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Insights into Manufacturing Mutual Funds

Manufacturing mutual funds have emerged as a compelling investment option for those looking to capitalize on India’s manufacturing growth story. These thematic funds concentrate on companies in the manufacturing sector, a cornerstone of economic expansion and employment generation.

In this article, we will discuss this category which is based on thematic Manufacturing and study its prospects for the future.

Here’s a detailed exploration of why manufacturing mutual funds are worth considering, the potential benefits and risks involved, and who should consider investing in them.

Why Consider Manufacturing Mutual Funds?

Let us see how the exposure to India’s Manufacturing Boom has been:

Government Initiatives: The Indian government’s “Make in India” campaign aims to transform India into a global manufacturing hub. This initiative, along with policies promoting self-reliance, has spurred growth and competitive advantages in various sectors.

Sector Growth: Sectors such as auto, pharmaceuticals, electronics, and textiles have seen significant growth, offering a rich investment landscape within manufacturing mutual funds.

Manufacturing Mutual Funds Gives Potential for High Returns

Recent Performance: Over the past year, manufacturing mutual funds have shown impressive returns, averaging around 60.70%, with top schemes reaching up to 68%. The Nifty India Manufacturing Total Return Index (TRI) surged by 62.06% over the same period, reflecting robust sector performance.

Future Prospects: Continued government support and reforms are likely to sustain this growth trajectory, potentially delivering high returns for investors.

How do Manufacturing Mutual Funds Diversify their Assets?

The following points tell us about how this, Thematic category distributes its assets:

Sector Distribution

Manufacturing mutual funds invest across various sectors including auto components, capital goods, healthcare, and industrial manufacturing. This diversification mitigates sector-specific risks and balances the portfolio.

Risk Management

By spreading investments across multiple manufacturing sub-sectors, these funds reduce the impact of downturns in any single industry.

Does Manufacturing Mutual Funds have the Government Support?

Yes, this category has the full support of the existing government and it has launched several schemes in its favour:

Reforms and Incentives: Policies like the Goods and Services Tax (GST), Production-Linked Incentives (PLIs), and streamlined regulatory processes have enhanced the ease of doing business, encouraging investments in manufacturing.

Infrastructure Development: Government initiatives to improve infrastructure further support the manufacturing sector, creating a conducive environment for growth.

What is the Long-term Growth Potential in Manufacturing Mutual Funds?

Here are several merits offered by this category to its investors:

Economic Contribution: The manufacturing sector is expected to contribute approximately 21% to India’s GDP in the next 6-7 years. This growth underscores the sector’s potential and the opportunities it presents for investors.

Global Supply Chains: As India strengthens its position in global supply chains, manufacturing mutual funds offer a way to tap into this expanding market.

What are the Risks and Considerations that should be kept in Mind?

The following are some considerations to be understood by the investors:

Market Fluctuations: The manufacturing sector is inherently cyclical, experiencing periods of growth and contraction. External factors such as global demand, technological changes, and policy shifts can impact performance.

Economic Conditions: Economic slowdowns or unfavourable policy changes can negatively affect the sector, leading to volatility in manufacturing mutual fund returns.

High-Risk Investment: Investing in thematic funds requires careful timing. Entering or exiting the market at the right time is crucial, given the high-risk nature of these funds.

Market Volatility: Market timing can be challenging due to the inherent volatility in the manufacturing sector.

Shedding Light on the Valuations of Manufacturing

Premium Pricing: Manufacturing stocks are currently trading at high valuations. Investors need to evaluate whether these premiums are justified based on future growth prospects.

Investment Analysis: A thorough analysis of the fund’s portfolio and its valuations is essential to make informed investment decisions.

Realistic Expectations

Long-term Investment: The transition to becoming a global manufacturing powerhouse is gradual. Investors should set realistic expectations and be prepared for a long-term commitment.

Returns Over Time: Significant returns might take years to materialize, necessitating patience and a long-term investment horizon.

Who Should Invest in Manufacturing Mutual Funds?

Based on the High-Risk Appetite, this category is suitable for the following investors:

Risk Tolerance: These funds are best suited for investors who can tolerate higher risk and are seeking substantial returns. A strong understanding of the manufacturing sector and its dynamics is crucial.

Investment Horizon: A medium to long-term investment horizon of at least 5-7 years is recommended to ride out market cycles and realize potential gains.

Moderate Risk Tolerant Investors should have the following benefits:

Diversified Equity Funds: For those with a moderate risk appetite, diversified equity mutual funds that include manufacturing stocks can provide balanced exposure. These funds offer the growth potential of the manufacturing sector while maintaining a diversified portfolio to manage risk.

5 Best Manufacturing Mutual Funds to Invest in 2024

Here are the top 5 Manufacturing Funds to invest in 2024:

ICICI Prudential Manufacturing Fund

ICICI Prudential Manufacturing Fund aims for capital growth by investing in equities of manufacturing companies across sectors like automobiles and industrials. It focuses on bottom-up stock selection to identify high-potential opportunities, reflecting the cyclical nature of the industry.

Axis Manufacturing Fund

Axis Manufacturing Fund seeks long-term capital appreciation through a diversified portfolio of manufacturing companies in sectors such as capital goods and chemicals. It emphasizes strong growth potential and competitive advantages, using active management to capitalize on investment opportunities.

Kotak Manufacturing Fund

Kotak Manufacturing Fund aims for long-term growth by investing primarily in manufacturing equities, covering large, mid, and small-cap companies. It focuses on firms with robust management and growth prospects, strategically allocating assets across various manufacturing industries.

Quant Manufacturing Fund

Quant Manufacturing Fund targets capital appreciation by investing in manufacturing equities, using quantitative models for stock selection and risk management. It offers diversified exposure across sectors like pharmaceuticals and engineering, driven by a data-centric approach.

HDFC Manufacturing Fund

HDFC Manufacturing Fund seeks long-term capital appreciation through investments in manufacturing and allied companies. It covers sub-sectors such as auto and industrial manufacturing, targeting firms with strong financials and growth potential, suitable for medium to long-term investors.

Conclusion

Manufacturing mutual funds present an exciting opportunity to benefit from India’s manufacturing growth story.

Investors can start their investments in its funds through a SIP plan for more disciplined portfolios.

However, investors should carefully weigh the risks, current valuations, and their own financial goals before investing. Consulting with a financial advisor to tailor a well-diversified investment strategy can help navigate the complexities of thematic investments and achieve long-term financial objectives.

jatinsharma

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