Some infrastructure funds are offering returns as high as 80-90% within a year, according to Value Research data.
These returns have led to category inflows tripling in the last two financial years.
While experts suggest the rally in this segment may continue, they caution investors to understand the cyclical nature and risks of these funds.
According to data from Morningstar India, infrastructure funds saw inflows worth ₹1,100 crore in 2022.
In 2023, this number rose to ₹2,359 crore.
In the first four months of 2024, inflows tripled from 2022 and stand at ₹3,376 crore.
A major factor behind these returns and inflows is the government’s strong infrastructure spending.
For FY25, a record-high budget allocation of over ₹11 lakh crore has been earmarked for infrastructure projects.
Investors are keen to capitalise on anticipated gains from this structural play.
Government data indicates that infrastructure spending has doubled since FY22, from ₹5.5 lakh crore to ₹11 lakh crore.
Infrastructure funds in India invest in sectors like transportation, energy, water and sanitation, communications, and both social and commercial infrastructure.
There are currently 16 sectoral and thematic infrastructure funds, two of which are passively managed.
The rest are actively managed and benchmarked against the Nifty Infrastructure TRI and the BSE India Infrastructure TRI.
Value Research data shows that the category average for infrastructure funds has started to outperform the broader market index over the past year.
Here are the top performers in the category:
| Scheme Name | 1-Year Returns (%) |
| Bandhan Infrastructure Fund | 90.58% |
| DSP T.I.G.E.R Fund | 88.70% |
| Quant Infrastructure Fund | 88.64% |
| Invesco India Infrastructure Fund | 88.60% |
| Nippon India Power & Infra Fund | 88.52% |
(Source: Value Research)
Despite the impressive short-term performance, mutual fund advisors remain cautious.
Vishal Dhawan, CFP and founder of Plan Ahead Wealth Advisors, advises retail investors to temper their expectations and consider a staggered investment approach through Systematic Investment Plans (SIPs) and Systematic Transfer Plans (STPs).
“There is an expectation that the strong public capex push by the government will continue and hence the rally in infra funds; however, investors need to be mindful that valuations in this space are very high and thus their return expectations going forward should be rationalised,” he says.
Some experts, like Rushabh Desai, founder of Rupee With Rushabh Investment Services, believe the potential return of the NDA government could sustain the sector’s momentum.
“Multiple opinion polls are predicting a return of the BJP-led NDA government with a full majority for the third term. This clearly indicates sustained economic reforms and continued policy momentum focusing on capex, manufacturing, and infrastructure development,” he notes.
However, Desai also warns that current valuations are at a premium, making it a risky time to invest.
“I do not recommend any sectoral funds and investors should not forget that sectoral bets will be very volatile and cyclical. They are better off taking exposure via diversified mutual funds,” he adds.
Infrastructure funds face several risks due to the capital-intensive nature of many sectors within the theme.
Companies often operate on thin profit margins and carry significant debt, increasing the risk of defaults.
The sector is also vulnerable to regulatory changes, project delays, economic instability, legal disputes, and logistical challenges.
Shifali Satsangee, a mutual fund advisor from Agra who runs Funds Vedaa, advises retail investors to keep their exposure to infrastructure funds minimal.
“Infra funds being highly cyclical in nature are ideal for investors who want to participate and benefit from the burgeoning Indian infrastructure scenario. Since these are sectoral/thematic funds, investors need to be aware of the high inherent risks and volatility involved. These funds can be up to a part of 5 percent of the tactical allocation rather than a core allocation in a portfolio,” she suggests.
While infrastructure funds have delivered exceptional returns recently, the high valuations and cyclical nature of the sector necessitate caution.
Retail investors should approach these funds with a clear understanding of the risks and consider them as a small part of a diversified investment portfolio.