Infrastructure Mutual Fund: A Fund For Long Term Investment
Infrastructure is the most critical sector of every nation. It provides us detailed information about the status of the respective nation’s economy, whether its developed or a developing economy. For a developing economy like India, development in infrastructure is going to be the key to national prosperity. This sector will be highly responsible for propelling India’s overall development in the coming decades. India’s infrastructure has seen exponential growth over the past decade. But India infrastructure lags far, far behind to their respective peers such as China, South Africa or Russia (economy on the size of scale). It needs at least $800 billion in a decade to close its infrastructure gaps. In the recent budget, infrastructure development takes center stage in the push towards $5 trillion economies. The infrastructure sector has seen a marginal growth of 4.7% on a year-on-year basis. It has been stable in the last 3 years, but the sector is likely to excite investors in the next 2-3 years. The current government focus has increased infrastructure spending and announces more reforms.
So, if you are a new investor who is looking to invest in the sector, then it’s better to start with the infrastructure mutual fund. These are the funds, which invest in the company that is directly or indirectly involved with the infrastructure sector. They mainly invest in stocks that would benefit from infrastructure spending. These funds are a little bit risky compared to other mutual funds. But if you have the risk appetite, then these funds will provide greater returns in the long term especially in 3 to 5 years. Let’s look at some of the top infrastructure mutual funds, according to value research in 2019:
- Franklin Build India Mutual Fund
- Kotak Infrastructure and Economic Reform Fund
- Tata Infrastructure Fund
- D.S.P T.I.G.E.R Fund
- S.B.I Infrastructure Fund
- Sundaram Infrastructure Advantage Fund
- Invesco India Infrastructure Fund
- ICICI Prudential Infrastructure Fund
But the infrastructure sector is highly cyclical in nature and depends upon the interest rate. The interest rate impacts the overall sector, whether it’s down or up. An increase in the rate pushes up the borrowing costs and hurt the prospects of the sector. “Developers have to borrow from banks, and when the borrowing goes up, the demand follows a downward trend. In case, if the interest rate is low, then borrowing cost goes down and increase the prospects of the sector. Last year due to an election, the sector has gone through hard times. But It is a high beta sector and Historically, it shows that when the market performs badly, the infra funds deliver negative returns. But once there is a secular bull run, these funds will perform well. More so, the infra sector is a highly demanding space, where the returns are always nonlinear, given most of them are cyclical companies. An investor needs to wait for a larger time horizon than a normal diversified fund. A period of three to five years will give you a better return. If your investment horizon allows this, then it’s better to stay invested in these funds for the longer term.
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*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.