Are infrastructure funds worth keeping to diversify investments?
India’s current infrastructure story is almost entirely driven by government spending. It has allocated Rs 111 lakh crore ($1.4 trillion) under the National Infrastructure Pipeline (NIP) for the financial year 2019-25. Sectors such as energy, roads, urban and railways make up the bulk of this allocation. About 71% of India’s planned infrastructure investment is for these sectors. Also, some major programs have been announced or some older ones have been extended in the 2022 budget. 54 lakh crore. The objective of extending the national road network has been set at 25,000 km. Rs 48,000 crore was directed towards the Pradhan Mantri Awas Yojana.
With so much announcement, it’s understandable that investors think infrastructure is a sector worth investing in, and infrastructure funds offered by fund companies seem like a logical investment avenue. . But take a closer look at these funds. In most cases, these funds are very diversified and tend to have overly diversified portfolios. They cover a wide range of sectors such as construction, engineering, telecommunications, transport, energy, cement, oil and gas, chemicals, IT services, etc. Even generally speaking, it is difficult to determine which sectors fall under infrastructure and which do not.
Sophisticated investors who consider infrastructure funds are generally those who have some understanding of the sector or who have previously invested in various market capitalization-focused funds and who consider sector funds as an addition or addition to their core portfolio. Based on these, the investor can turn to very specific funds such as IT or construction telecoms.
So what are the options if you want to diversify. Depending on the individual’s risk profile, one or more multi-cap funds may be considered. These funds also have a hand in the dough, but the selection is tied to diversification based on market capitalization. Broad-based index funds are also an option because they cover many sectors at once and simply mimic the index they track. Specific sector funds that have a narrow focus could also be added, provided the investor fully understands the associated risk.