What are Infra Funds and Can They Be Advantageous to Your Portfolio?

Over the years, infra funds have witnessed a significant inflow. While these funds recorded inflows of ₹1160 crores in 2022, inflows swelled to ₹2359 crores in 2023 . However, in the first four months of 2024, the inflow in infra funds stood at ₹3376 crores, almost tripling since 2022. The large inflow in infra mutual funds is a testimony to their growing popularity among investors.

What are Infra Mutual Funds?

Infra mutual funds are sectoral funds that invest in India’s infrastructure sector. Note that infrastructure is a broad term encompassing multiple industries such as power, ports, railways, telecom, urban development, airports, etc. Investing in infrastructure funds allows you to be a part of India’s growing infrastructure development.

Types of Infra Mutual Funds

There are two broad types of infra mutual funds. These include:

• Thematic Funds

Thematic funds invest in a particular infrastructure theme or trend within the infrastructure sector. These could be power, roads, urban development, renewable energy, etc.

• Index Funds

Index infra funds track and try to mimic the performance of an index, such as the Nifty Infrastructure Index or the BSE Infrastructure Index, representing the infrastructure sector. The goal of index infra mutual funds is not alpha generation but to generate returns in line with the index.

Should You Invest in Infra Funds?

Now comes the all-important question of whether you should invest in infra mutual funds or not. Adding infra funds to your portfolio can be advantageous due to these reasons:

• Impressive Returns

Returns are an essential lookout while investing in any financial instruments, and infra mutual funds have delivered stellar returns over the past year. Data shows these funds delivered an average return of 74% over the past year .

• Government’s Focus on Infrastructure

In the last few years, the Government of India has been increasingly focussing on infrastructure development. It has announced several initiatives such as National Infrastructure Pipeline, Production-linked Incentive Scheme (PLI) and Asset Monetisation Programme, among others, to propel growth.

The government has also increased capex in the infra sector, from ₹10 lakh crore in the Union Budget 2023-24 to ₹11.1 lakh crore in the Interim Budget 2024-25 . All of these have created a conducive environment for the sector.

• A Diversified Sector

Infra mutual funds also benefit from the fact that the sector is quite diverse. There are several sub-sectors with their own dynamics and growth opportunities. Investing in the best infra fund can help you tap the opportunities of the sector.

Things to Keep in Mind While Investing in Infra Mutual Funds

You need to keep certain things in mind while investing in infra funds. Some essential lookouts are:

• Be Aware of the Potential Risks

Even the best infra funds are not immune to cyclical risks. Note that these funds tend to do well in a booming economy while underperforming when the economy is going through turbulence. Hence, you need to be cautious while timing your entry and exit.

• Ensure the Funds Aren’t Over Concentrated

With the infrastructure sector having several sub-sectors, it’s crucial to ensure that the fund doesn’t concentrate its portfolio on only a few sub-sectors or companies. Hence, before investing, check the fund’s diversification.

Conclusion

Investing in infra funds can be rewarding in the long run. With India’s economy poised for growth in the coming days, infrastructure is set to play a pivotal role. However, you should research properly and ensure the fund aligns with your overall financial goals and risk appetite.

Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.

Investments in the securities market are subject to market risks, read all the related documents carefully before investing. Please read the SEBI-prescribed Combined Risk Disclosure Document before investing. Brokerage will not exceed SEBI’s prescribed limit.