Introduction
Here is an exciting investment opportunity with Sectoral Infrastructure Funds with a strategic plan for investors. It capitalizes on the fast development and modernisation of essential services and facilities. These funds are a specialized type of mutual fund that focuses on companies within the infrastructure sector. These companies include industries such as transportation, utilities, telecommunications and construction. By channelling investments into these areas, these funds provide investors with significant growth potential.
In this article, we will explore the advantages of investing in sectoral infrastructure funds, how they manage risk, their historical performance and key considerations to keep in mind.
Finally, we will discuss the broader implications of investing in infrastructure, how these funds play an important role in supporting economic growth.
Stay with us until the end of this post as we will unravel the 5 best Schemes in this category.
What are Sectoral Infrastructure Funds?
Sectoral infrastructure funds are a unique category of mutual funds that concentrate investments in companies operating within the infrastructure sector. This sector includes a diverse array of industries such as transportation, utilities, telecommunications, and construction. By investing exclusively in these areas, sectoral infrastructure funds offer investors a specialized opportunity to benefit from the growth potential inherent in this vital segment of the economy.
Key Advantages of Investing in Sectoral Infrastructure Fund
The following are some key merits of investing in these schemes that are as follows:
Targeted Investment Approach
- Sectoral infrastructure funds focus specifically on the infrastructure sector, unlike diversified equity funds.
- Fund managers utilize their specialized knowledge and industry insights to identify high-potential companies.
- This focus can potentially result in higher returns for investors due to targeted expertise.
Economic Growth Driver
- The infrastructure sector is crucial for economic growth and development.
- Investments in infrastructure support the development and modernization of transportation networks, energy supply, and communication systems.
Government Initiatives and Policies
- Sectoral infrastructure funds can capitalize on government initiatives aimed at boosting infrastructure development.
- Policies promoting infrastructure growth can enhance the sector’s potential, leading to increased returns for the fund.
These points highlight how sectoral infrastructure funds target investments, support economic growth, and benefit from government policies to potentially deliver higher returns for investors.
How Sectoral Infrastructure Funds Distribute Risk?
While the targeted approach of sectoral infrastructure funds can yield significant returns, it also comes with increased risk. The lack of diversification means that if the infrastructure sector faces a downturn, the fund’s performance will be adversely affected. For instance, regulatory changes, economic slowdowns, or industry-specific challenges can have a substantial impact on the performance of infrastructure companies, and consequently, on the fund itself.
Investors must be aware of this heightened risk profile and consider sectoral infrastructure funds as part of a broader, diversified investment strategy. These funds should typically constitute a small portion of an overall investment portfolio to mitigate risk.
Historical Performance of Sectoral Infrastructure Fund
Despite the risks, sectoral infrastructure funds have shown strong performance in recent years. Over the past five years, these funds have delivered average annual returns of around 28.49%, outpacing many broader market indices. Their three-year and ten-year annualized returns are also impressive, at 36.48% and 18.81%, respectively. This robust performance highlights the potential of sectoral infrastructure funds to generate substantial returns for investors.
How to select the Sectoral Infrastructure Funds?
When considering an investment in a sectoral infrastructure fund, it’s crucial to carefully evaluate several factors:
Portfolio Composition: Look for funds with a diversified mix of infrastructure-related companies. A well-balanced portfolio can help mitigate risks associated with specific sub-sectors within the infrastructure domain.
Management Team: The expertise and experience of the fund managers are critical. Managers with a deep understanding of the infrastructure sector and a proven track record of successful investments are more likely to deliver strong performance.
Track Record: Assess the historical performance of the fund. Consistent returns over various market cycles can be an indicator of the fund’s potential to perform well in the future.
Expense Ratio: Evaluate the costs associated with the fund. Lower expense ratios can enhance overall returns, especially in the long term.
5 Best Sectoral Infrastructure Funds to Invest in 2024
Kotak Infrastructure & Economic Reform Fund
Investment Objective
This fund aspires to produce long-term capital appreciation by investing primarily in equity and equity-related securities of firms involved in infrastructural and economic changes that would lead to India’s economic growth.
Fund House Name: Kotak Mutual Fund
Launch Date: 25.02.2008
AUM: Rs.1989.53 Crores (as of 31.05.24)
CAGR: 17.4%
Aditya Birla Sun Life Infrastructure Fund
Investment Objective
This scheme intends to deliver medium to long-term capital appreciation by investing primarily in a diverse portfolio of equity and equity-related instruments of firms involved in India’s infrastructure building and development.
Fund House Name: Aditya Birla Sun Life Mutual Fund
Launch Date: 17.03.2006
AUM: Rs.1146.32 Crores (as of 31.05.24)
CAGR: 13.29%
Canara Robeco Infrastructure Fund
Investment Objective
This scheme seeks to invest in stocks and equity-related products issued by infrastructure businesses. The plan intends to invest in shares of firms with a strong potential to profit from such infrastructure expenditure.
Fund House Name: Canara Robeco Mutual Fund
Launch Date: 02.12.2005
AUM: Rs.694.65 Crores (as of 31.05.24)
CAGR: 16.12%
ICICI Prudential Infrastructure Fund
Investment Objective
This scheme intends to invest in equity/equity-related securities of infrastructure development businesses, with the balance in debt securities and money market instruments, including call money
Fund House Name: ICICI Prudential Mutual Fund
Launch Date: 31.08.2005
AUM: Rs.5034.14 Crores (as of 31.05.24)
CAGR: 16.89%
LIC MF Infrastructure Fund
Investment Objective
This scheme intends to invest in equity/equity-related securities of firms directly or indirectly involved in the infrastructure industry.
Fund House Name: LIC Mutual Fund
Launch Date: 29.02.2008
AUM: Rs.333.23 Crores (as of 31.05.24)
CAGR: 10.29%
Expert’s Assumptions on Sectoral Infrastructure Fund
Sectoral infrastructure funds are not just about capitalizing on current market trends; they are about investing in the future of a country’s economic foundation. By targeting companies that build and maintain essential infrastructure, these funds offer a unique pathway to participate in the growth story of an economy. However, investors should approach with caution, ensuring that their overall portfolio remains balanced and aligned with their risk tolerance and investment goals.
By incorporating sectoral infrastructure funds wisely, investors can potentially enhance their portfolio’s performance while contributing to the vital development of infrastructure that supports economic growth and societal progress.
Conclusion
Sectoral infrastructure funds provide a compelling investment opportunity for those looking to capitalize on the growth potential of the infrastructure sector. Investors can start an early SIP to diversify their portfolio with this scheme. While they carry higher risks due to their lack of diversification, their strong historical performance suggests they can be a valuable addition to a well-diversified investment portfolio. As with any investment, conducting thorough research and understanding the associated risks are crucial steps before committing capital. By carefully selecting funds with robust portfolio compositions, experienced management teams, and proven track records, investors can harness the potential of sectoral infrastructure funds to achieve significant long-term gains.
