If there is any sector that mutual fund advisors are gaga over, it is infrastructure.
Many advisors say that they are bullish on the infrastructure funds, as they believe that the government’s push to infrastructure sector will help these funds deliver attractive returns.
Value Research data shows that infrastructure funds gave returns of 37%, 22% and 18% over one, three and five years respectively. Currently, there are 20 infrastructure schemes.
Experts believe that the sector will grow further. “If one believes in the turnaround in the investment cycle, then infrastructure sector could be a good play in the current scenario,” says Navneet Munot, CIO, SBI Mutual Fund.
“Government’s focus on reviving infrastructure sector along with the tax reforms and ‘housing for all’ scheme will result in higher spending in the infrastructure space. In future, we will see increasing number of affordable housing projects and easy commuting facilities in cities. All these activities will give a fillip to the infrastructure sector,” says Delhi-based RIA Amit Kukreja.
Mumbai-based Vinod Jain of Jain Investments says, “Introduction of GST would make inter-state transportation of goods effective. Going forward, this will boost the stocks of logistics and transportation companies. As infrastructure funds have exposure to such stocks, these funds can deliver higher returns.”
The budget 2016-17 has allocated Rs.3.96 lakh crore for creating and upgrading infrastructure. Government has introduced various schemes like Ujwal Discom Assurance Yojana (UDAY), Housing for All and Smart City Network, which will help increase spending in the sector.
However, experts warn that investors should take a conservative approach when dealing with infrastructure funds. Vinod says that investors should have only 5-10% allocation to infrastructure funds.
Seconding Vinod’s view, Nagpur-based Ranjit Dani of Think Consultancy “We do not want investors to go overboard with these funds. In my view, advisers should suggest 10% allocation to these funds.”
On time horizon, Ranjit says advisers should encourage investors to stay invested for at least 7 years in infrastructure fund to reap benefits.
“Investors who have a three to five horizon can invest in infrastructure funds. However, investors should ideally stay invested in these funds for 10-15 years,” says Soumendra Nath Lahiri, CIO of L&T Mutual Fund.
However, advisers need to remember that infrastructure funds are suitable for investors with a high-risk appetite who believe in economic development and are willing to hold their investments for a long term. This sector is very prone to volatility. Such funds are easily affected by any change in policy or delay in project implementation, caution experts.
