Bandhan Infrastructure Fund, the topper in the category, offered around 86.92% returns in the last one-year period. LIC MF Infra Fund offered around 86.57% returns in the same time period.
Invesco India Infrastructure Fund gave around 78.06% returns in the period. UTI Infrastructure Fund, the oldest in the category, gained 58.91% in the same period. ICICI Prudential Infrastructure Fund, the largest fund in the category, offered 67.46% returns in the above period.Also Read | PSU MFs outshine with up to 99% return in 1 year! Will Budget turbocharge your wealth?
Several factors have contributed to the impressive performance of these funds. Here is what experts say about the performance of these funds.“Infrastructure funds had a phenomenal run since 2019 after Modi 2.0 had taken over as there was a significant impetus by the Government in various infrastructure related projects like roadways, railways, water and many more,” said Rajesh Minocha, a Certified Financial Planner (CFP), Founder of Financial Radiance.Another financial advisor believes that ongoing enhancements to the Production Linked Incentive (PLI) scheme have provided major support.“The stellar performance of infrastructure funds can be attributed to several key factors. First, there has been a substantial increase in government capital expenditure on infrastructure projects, including significant allocations of Rs 10 lakh crore in the Union Budget 2023-24 and Rs 11.1 lakh crore in the Interim Budget for 2024-25, which have significantly bolstered these sectors. Additionally, the government’s strong focus on public infrastructure development and supportive policies have created a favorable environment for these funds.
Reforms in power, railways, and defense have further driven growth within the infrastructure sector, enhancing its overall performance. Infrastructure funds have also benefited from improvements in the financial performance of companies within this sector, driven by higher demand and profitability in areas like construction and utilities,” said Sagar Shinde, VP Research, Fisdom
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He added, “Moreover, ongoing enhancements to the Production Linked Incentive (PLI) scheme have supported the manufacturing capabilities within the infrastructure sector, providing an additional boost to these funds.”
In the last six months, infrastructure sector funds have offered an average return of 33.07% where LIC MF Infra Fund topped the chart with around 45.40% returns. Bandhan Infrastructure Fund offered 45.38% returns in the similar time period.
In 2024 so far, these funds gave an average return of 35.50%. Bandhan Infrastructure Fund offered the highest of 51.26% in 2024 so far. LIC MF Infra Fund gave 47.45% in the said period.
Looking to make an allocation in these funds? Experts recommend the investors to proceed cautiously and consider risk appetite, investment horizon and goal before making any investment decision.
“The rapid increase in the manufacturing capabilities within the infrastructure sector has led to valuations that are higher than historical averages. While the rally may persist in the short term, sustained earnings are necessary to support these elevated valuations. Consequently, despite the impressive returns, investors should proceed with caution, considering their risk tolerance and investment objectives before making allocations. Sector-specific investments tend to be more volatile and risk-prone, so those with lower risk tolerance might prefer funds with a flexible mandate, offering a more diversified exposure,” recommended Shinde.
“Rather than sector funds, I feel thematic funds would be better, as then the focus is on the theme getting played out that can have several underlying sectors. Better still, a fund like a business cycle fund can have various themes underlying it, based on the choice and comfort of the fund manager,” suggested Minocha.
Based on yearly returns for the last 10 years (2014-2023), infrastructure funds have performed poorly in 2018 where they lost around 17.88% and have offered the highest return in 2014 of around 63.54%. In 2023, infrastructure funds gave an average return of 45.16%.
The infrastructure funds are benchmarked against Nifty Infrastructure – TRI and BSE India Infrastructure Index – TRI. Nifty Infrastructure – TRI offered 60.75% return in the last one year. The data for BSE India Infrastructure Index – TRI was not available.
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Looking at the past performance are you interested in making investments in these infrastructure sector based funds? What is the outlook for the infrastructure sector ahead of budget?
“The outlook for the infrastructure sector ahead of the Union Budget 2024 is highly optimistic, fueled by significant government investments and strategic plans. The government has allocated Rs 11.11 lakh crore for infrastructure development in the interim budget, indicating a strong intention to maintain continuity in infrastructure spending. This substantial investment is set to support major projects, including roadways, railways, and urban development,” said Sagar Shinde.
He adds, “Key initiatives expected to drive growth in this sector include the PM Gati Shakti program, which focuses on enhancing connectivity and reducing logistics costs by developing crucial economic corridors. The government also plans to modernize railways, with upgrades of rail bogies to the Vande Bharat standard, and expand the aviation network by doubling the number of airports to improve regional connectivity. Furthermore, the government is prioritizing sustainable and energy-efficient projects, including substantial investments in renewable energy and the promotion of bio-manufacturing. These efforts align with global trends towards sustainability and are expected to attract significant private investment.”
“Overall, the infrastructure sector is poised for robust growth, supported by increased government spending, strategic initiatives, and a favorable policy environment, making it an attractive area for investment ahead of the budget. However, investors should remain cautious about the high valuation,” he further said.
“The infrastructure funds have already been very high. It is unlikely that similar returns will be sustained, though they should still continue to do well. Investors should tone down their expectations for the future. It is very unlikely that the returns achieved since 2023 will be sustained. Typically, post-tax returns of about 4% to 6% over inflation are very good returns in equity markets,” said Rajesh Minocha.
Infrastructure funds are meant for investors with a high risk tolerance. Thematic or sector schemes invest most of their corpus in a particular sector, and the performance of schemes is based on performance of the sector. That is why thematic or sector funds are recommended only to investors with thorough knowledge about the sector.
You should invest in these schemes only if you have a long investment horizon or have intimate knowledge about the sector to time the entry and exit in these schemes. Remember, every sector or theme can go out of fashion depending on the economic conditions. You should not make hasty decisions in those phases.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)