Infrastructure Mutual Funds: 5 Best Infrastructure Mutual Funds, Risk and Return

Infrastructure Mutual Funds - Overview

Infrastructure funds are a kind of sectoral equity mutual funds that particularly cater to entities that are related to the infrastructure sector directly or indirectly. Being a sectoral fund, the risk on investment for these funds is relatively high but the returns are also high. With the increased focus of the government on infrastructure development across the country, this sector has offered a pile of opportunities to leverage the growth potential of the infrastructure sector in the nation. 

In this article, we will talk about different aspects of Infrastructure Mutual Funds and gain a deeper understanding of the same. Let’s get started.

Top 5 Infrastructure Mutual Funds to Invest In 2024

Infrastructure is the backbone of any economy, and investing in its development can be a rewarding strategy for long-term wealth creation. Infrastructure mutual funds offer a convenient way to tap into this potential, providing exposure to a diversified basket of companies involved in various sectors like construction, energy, transportation, and more.

1. SBI Infrastructure Fund:

Launched in 2005, this fund is one of the oldest and most established infrastructure funds in India.

• It has a strong track record, delivering an annualized return of 15.6% over the past five years (as of December 2023).
• The fund invests primarily in large-cap companies with a focus on sectors like roads, power, and renewable energy.
• Expense ratio: 1.07%

2. Kotak Infra and Economic Reform Fund:

This fund aims to benefit from the government's focus on infrastructure development and economic reforms.

• It has delivered an annualized return of 17.3% over the past five years.
• The fund invests in a mix of large-cap and mid-cap companies across various infrastructure sub-sectors.
• Expense ratio: 1.15%

3. Canara Robeco Infra Fund:

• This joint venture between Canara Bank and Robeco, a Dutch asset management firm, offers a global perspective on infrastructure investing.
• It has delivered an annualized return of 16.5% over the past five years.
• The fund invests in a diversified portfolio of Indian and international infrastructure companies.
• Expense ratio: 1.23%

4. Tata Infra Fund:

• Backed by the Tata Group, one of India's leading conglomerates, this fund provides access to a strong network and expertise in the infrastructure sector.
• It has delivered an annualized return of 14.8% over the past five years.
• The fund invests primarily in large-cap companies with a focus on core infrastructure sectors like roads, railways, and ports.
• Expense ratio: 1.05%

5. DSP India TIGER Fund:

This fund focuses on companies involved in transportation and infrastructure growth.

• It has delivered an annualized return of 18.2% over the past five years, making it the highest performer on this list.
• The fund invests in a mix of large-cap and mid-cap companies across various transportation sub-sectors like roads, railways, airports, and logistics.
• Expense ratio: 1.25%

THINGS TO CONSIDER BEFORE INVESTING

1. Investment tenure:

It is required that investors have an investment horizon of at least 5 years or more to mitigate the associated risk to a maximum extent and reap the maximum returns out of it. 

2. Risk profile:

If investors are not willing to take risks then they should stay away from investing in these mutual funds as they carry high levels of risk which we are going to talk about next. They should be ready to assume a high level of risk while investing in these. 

3. Diversification:

Investors must take note that they do not get the advantage of exposure to a diversified portfolio by investing in Infra mutual funds. The reason is that these funds invest in shares of entities that are driven by consumers. 

RISKS ASSOCIATED WITH INFRASTRUCTURE FUNDS

1. Market Risk:

Market risks are the possibility of the value of the investments getting reduced due to the downward market movements. 

2. Concentration Risk:

The risk of concentration associated with sectoral infra funds is on the high side as their portfolio is concentrated with infra companies securities. There is no doubt that investors can make amazing returns when the sector is booming. But losses can be magnified when performance is not as expected. 

3. Volatility Risk:

Volatility risk is the possibility of a reduction in your worth of investment due to a sudden change in the price of the shares. 

HOW TO PICK THE BEST INFRASTRUCTURE FUNDS TO INVEST IN?

Some of the key aspects you must keep in mind while opting for are as listed below:

1. Fund performance:

Go with a mutual fund that has performed consistently over the last 5 years. Also, that has consistently beaten the benchmark of 4-5 years can be an ideal choice. 

2. Fund managers and fund house:

Take a look at the reputation of the AMC/Fund House and the Fund managers who manage the funds. A fund should belong to a reputed and quality firm. Adding to it, a fund's performance is majorly in the hands of its managers. Therefore, investors should check the past performance of the fund that is being managed by the fund manager and also with experience. 

3. Size of the fund:

While picking a mutual fund, investors should always have a look at the size of the fund. There is no ideal definition and relation between the fund size, it is said that both too large and too small, can hinder the performance. Hence, while opting for a fund, it is advised to go for the fund whose AUM is approximately the category. 

WHO SHOULD INVEST?

1. Investors have a high risk appetite as the returns are solely dependent on the performance of a single sector which is Infrastructure.
2. Investors have long-term investment tenure (at least 5 to 6 years) as the equity securities are quite sensitive to market fluctuations in the short tenures.
3. Before opting for investment in these funds, investors should do proper research and analysis of the future and current market situation and growth prospects of the companies in the funds and sector. The decision should be based on multiple factors related to the sector.

Faqs:

1. What are the tax implications of investing in infrastructure mutual funds?

A. Investments in infrastructure funds are subject to capital gains tax depending on the holding period and type of fund (equity or debt). Long-term capital gains (held for more than one year) are taxed at lower rates than short-term gains.

2. Can I invest in infrastructure mutual funds through a SIP (Systematic Investment Plan)?

A. Yes, most infrastructure funds offer SIP options, allowing you to invest a fixed amount at regular intervals (monthly, quarterly, etc.). This can be a good way to build your investment gradually and benefit from rupee-cost averaging.

3. How do infrastructure mutual funds compare to other sectoral funds like IT or banking?

A. Infrastructure funds have different risk and return profiles compared to other sectoral funds. They tend to be less volatile than IT funds but may offer lower potential growth. Compared to banking funds, they might be more exposed to government policies but can provide higher returns in periods of economic expansion.

4. What are some alternatives to infrastructure mutual funds for investing in infrastructure?

A. 

• Direct investment in infrastructure stocks: This requires more research and analysis of individual companies, but offers the potential for higher returns and control over your investment.
• Infrastructure bonds: These government-issued bonds offer lower risk and steady returns, but may have lower potential growth compared to mutual funds.
• Real Estate Investment Trusts (REITs): REITs invest in income-generating real estate assets, including infrastructure projects. They offer exposure to the sector while providing regular rental income.