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Infrastructure Mutual Funds: Building Wealth While Building Bridges

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The physical structures a country, industry, or region shares are called infrastructure. Infrastructure encompasses transportation networks, utilities like gas, water, and electricity, and communication networks. All these are not essential but important for a nation’s advancement. Besides, they are also capital-intensive and very high-cost investments. 

India’s road infrastructure is a vast and complex topic involving notable progress and ongoing challenges. Due to increased connectivity between the country’s towns, cities, and villages, the volume of road traffic has increased over time. Both passenger movement and trade and business depend on this extensive network. Hence, a positive growth prospect for this sector made people interested in investing in infrastructure shares.

Know Everything About Infrastructure Funds

Infrastructure mutual funds, like the Quant infrastructure fund, are schemes that invest in companies related to infrastructure development. These mutual funds only focus on companies involved in infrastructure activities, such as construction, operations, or maintenance of roads, bridges, railways, airports, water supply systems, telecommunication networks, and power plants.

These mutual funds may invest in equity and debt instruments, thus offering investors the proper growth and potential exposure in the infrastructure sector. The fund aims to provide long-term income and capital appreciation, and hence, it invests in assets benefiting from government support, stable capital, and growing services demand.

As an investor, you can benefit from these infrastructure funds’ diversification opportunities and capital appreciation potential. However, there may be risks attached, like regulatory changes, economic conditions, or project delays, that you must consider before investing.

Why Invest in Infrastructure Funds?

Here are some reasons to invest in infrastructure funds, like Quant infrastructure fund:

  1. This sector is crucial for economic productivity and growth, contributing to employment, improving connectivity, boosting consumer demand, and enhancing competitiveness. To reach its GDP objective of $5 trillion by 2025, India would need to invest over $1.4 trillion in infrastructure over the next five years, according to research by NITI Aayog.
  2. Infrastructure is one sector that grows with economic development. Since India is reviving from the pandemic slowdown, much is in store for this sector. Moreover, the government has also announced various policies, like the national infrastructure pipeline, the asset monetisation program, and the production-linked incentive scheme to initiate support to this sector.
  3. This sector offers stable and predictable returns and cash flows in the long term. This industry’s initiatives demand significant financial commitments and lengthy gestation periods. As a result, they gain from long-term contracts, regulatory assistance, and tax advantages. This industry’s consistent income creation and long-term capital growth might benefit investors.
  4. Moreover, this sector is enormous, covering many sub-sectors and segments with its opportunities, dynamics, and risks. Investors may get exposure to various businesses and sectors within the infrastructure sector by investing in sector funds. By doing this, they can improve their risk-adjusted returns and lower their portfolio volatility.

Top 6 Infrastructure Mutual Funds to Invest

Here are the top 6 infrastructure funds and their metrics comparison:

Fund Name NAV (in Rs) Fund Sise (In Rs – Cr) Expense Ratio 10-Year Annualised Returns
Quant Infrastructure Fund 38.94 3187.6 2.01% 21.46%
Canara Robeco Infrastructure Fund 137.05 597.25 2.46% 18.29%
Bandhan Infrastructure Fund 45.72 1171.09 2.23% 17.86%
UTI Infrastructure Fund 129.50 2183.97 2.22% 14.63%
ICICI Prudential Infrastructure Fund 170.98 5004.78 1.85% 18.35%
SBI Infrastructure Fund 46.2 2793.93 2.06% 18.57%

Risks Associated with Infrastructure Funds

Here are some risks associated with infrastructure funds that investors must consider:

 

  1. Leverage is a typical infrastructure feature, but it’s not without risk. High levels of leverage translate into high interest rates. There would be a significant risk to the asset if the capacity to provide income matched the interest.
  2. Environmental, social, and governance risk, or ESG risk, is a crucial infrastructure component at all times. For instance, the social community of the area may be disrupted when a major highway or bridge is built across it. Furthermore, there may be many pollution and environmental risks throughout the building period, which must be addressed.

Conclusion

These infrastructure funds are a great way of capitalizing on the high potential of the infrastructure sector of India. When choosing infrastructure funds that fit their specific investment objectives and risk tolerance, investors must consider sectoral exposure, fund management experience, and liquidity.

 

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