Long-Term Gains: A Guide To Infrastructure Mutual Funds

March 5, 2024

A country’s development is greatly influenced by its infrastructure, and investing in Infrastructure Mutual Funds can be a wise way to match the expansion of this important industry with the growth of your portfolio. The infrastructure segment includes businesses in industries such as energy, power, metals, real estate, etc.

To optimize the benefits of infrastructure growth, an infrastructure fund focuses on this particular market segment. In India, infrastructure investments are unavoidable but can be put off. To help you make wise investment decisions, this in-depth guide will examine the complexities of infrastructure mutual funds in India, highlight the best solutions, and address commonly asked questions.

Moreover, if you are an investor and planning to invest in Infrastructure Mutual Fund for long term gain then get in touch with us at 7834834444.

What are Infrastructure Mutual Funds?

Infrastructure Mutual Funds are mutual funds specifically designed for infrastructure development. A minimum of 80% of the assets of infrastructure funds are allocated to businesses in the infrastructure industry. Infrastructure development plays a pivotal role in the economic growth and development of a nation, and infrastructure funds facilitate this development while offering investors the possibility of long-term gains.

Moreover, Infrastructure mutual funds are classified as extremely high-risk investments because their performance can be greatly influenced by bureaucracy and government regulations, but they also have the potential to provide steady returns over the long run. Even though it happens more slowly, infrastructure development frequently continues during economic downturns. These investment options might be less volatile in comparison.

Infrastructure mutual funds can produce cash flow in the long run because they are real assets. In addition to allowing investors to diversify their holdings, infrastructure mutual funds may also shield them from market volatility caused by swings in stock prices. However, the majority of Indian infrastructure funds are high-risk, high-return ventures.vvv

Types of infrastructure Mutual Funds

Investors have access to a variety of infrastructure sector funds to select from. A few of them consist of

Theme-based funds

In the infrastructure sector, these are funds that invest in a particular theme or trend, like power, roads, urban development, etc. Investors who have a strong belief in and comprehension of the theme can benefit from focused exposure and high return potential offered by these funds. They do, however, also carry a higher risk as they are more vulnerable to the unknowns and challenges of the theme.

Index funds

These funds follow and imitate the performance of an index, like the S&P BSE India Infrastructure Index or the Nifty Infrastructure Index, that measures the state of infrastructure. Investing in these funds allows investors to follow the sector’s market movements while also providing passive exposure and the possibility of low-cost returns. Since they are unable to beat or underperform the index, they also entail market risk.

Key Characteristics of Infrastructure Mutual Funds

Sector-Specific Focus

Investments made by infrastructure funds are primarily made in businesses that construct and maintain vital infrastructure.

Long-Term Investment Horizon

These funds usually have a long investment horizon because of the nature of infrastructure projects and their gestation periods.

Risk and Return

While offering the potential for attractive returns, infrastructure funds may also carry higher risk, especially related to economic cycles, government policies, and project execution.

Diversification

A well-managed infrastructure mutual fund diversifies its holdings across various sub-sectors to manage risk effectively.

Why to invest in infrastructure Mutual funds?

Investing in funds associated with the infrastructure sector presents investors with a strong opportunity for a variety of reasons. The contribution of infrastructure to economic growth cannot be overstated, and as India strives to achieve its ambitious GDP target, large-scale investments in this sector are crucial.

Economic Growth

Infrastructure development promotes economic expansion. It enhances productivity, fosters competitiveness, generates demand, boosts employment, and strengthens overall connectivity. The economic well-being of a country is greatly influenced by these factors.

Estimated Investments in India

India needs to invest about $1.4 trillion in infrastructure over the next five years, according to a report by NITI Aayog, in order to reach its GDP target of $5 trillion by 2025. This emphasizes how important infrastructure is to the nation’s development plan.

Economic Recovery and Cyclical Nature

An industry that is cyclical and typically performs well during times of economic expansion or recovery is infrastructure. The pandemic-induced economic slowdown in India may give way to a potential rebound in demand and activity within the infrastructure sector.

Government Initiatives and Stimulus Plans

The government has unveiled many policy measures and economic stimulus programs to bolster the infrastructure industry. Initiatives to increase investment, enhance efficiency, and spur growth include the National Infrastructure Pipeline (NIP), the Production-Linked Incentive (PLI) scheme, and the Asset Monetization Program.

Long-Term Investments with Predictable Returns

Infrastructure projects with a long lifespan provide consistent cash flows and returns. These projects have long gestation periods, significant capital expenditures, and long-term contracts that offer investors tax advantages and regulatory support.

Diverse Opportunities in the Infrastructure Sector

With many different subsectors and market niches, the infrastructure sector is quite large. There are distinct opportunities, risks, and dynamics in every subsector. Investing in sector funds enhances risk-adjusted returns and lowers portfolio volatility by providing investors with exposure to a wide variety of infrastructure sector companies.

Who should invest in Infrastructure mutual funds?

Investing in infrastructure Mutual Funds is not a one-size-fits-all strategy, and it is essential for investors to carefully consider their risk tolerance, investment horizon, and financial goals before allocating funds to this sector. Here’s a breakdown of the types of investors who might find Infrastructure Mutual Funds suitable:

Risk-Tolerant Investors

Infrastructure mutual funds are considered high-risk investments due to factors such as unforeseen environmental conditions, project delays, and socioeconomic challenges. These funds may be appropriate for investors who are at ease with greater levels of risk and who are looking for possibly higher returns.

Long-Term Investors

The development of infrastructure projects usually takes a long time, and results may not show up right away. The characteristics of Infrastructure Investment Funds are better suited for long-term investors who are patient and prepared to wait for the possible growth and advantages of infrastructure development.

Equity-Oriented Investors

Infrastructure mutual funds primarily make investments in the stock and securities of businesses engaged in infrastructure and associated activities. These funds may be attractive to investors who are hungry for equity investments and want to be exposed to the infrastructure sector’s growth potential.

Wealth Creation Goals

These funds are appropriate for those who want to create wealth over a long time because infrastructure projects need large capital investments and provide long-term benefits. Infrastructure Investment Funds are in line with the goal of accumulating significant wealth over time.

Investors Focused on Economic Growth

These funds may be appealing to investors who see the potential for economic growth associated with infrastructure development. Those looking to match their investments with this kind of growth may want to look into Infrastructure Investment Funds. Infrastructure projects frequently contribute to overall economic growth.

Best Infrastructure Mutual Funds

If you are an investor and you are planning to invest in the best infrastructure mutual funds, then here are some top performing fund you might be interested in investing in

DSP India T.I.G.E.R. Fund Reg (G)
Kotak Infra & Eco Reform Std (G)
Tata Infrastructure Fund (G)
Bank of India Manufacturing and Infrastructure Fund (G)
Sundaram Infrastructure Advantage Fund Reg (G)
UTI Infrastructure Fund (G)

Tax implications of investing in infrastructure Mutual Funds

Indeed, the tax implications of investing in Infrastructure Mutual Funds are akin to those of equity funds. Here’s a more detailed breakdown of the tax considerations:

Short-Term Capital Gains (STCG)

If the infrastructure fund units are sold within a year of purchase, they are considered short-term capital gains. Mutual Funds for infrastructure have a 15% tax rate on short-term capital gains. The profits made from the sale of units during the short term are subject to this rate.

Long-Term Capital Gains (LTCG)

A long-term capital gain is realized if the infrastructure fund units are sold within a year of purchase. Taxes are not applied to long-term capital gains up to ₹1 lakh in a fiscal year. This exemption allows investors to enjoy tax-free returns on gains below this threshold. Profits over ₹1 lakh in a fiscal year are subject to a 10% flat tax. For the part of long-term capital gains that exceed the ₹1 lakh exemption limit, this rate is applicable.

It is also crucial to remember that tax laws are subject to change, so investors should keep up with any updates made by tax authorities. Furthermore, people might have particular financial circumstances, so it is a good idea to consult a tax expert or financial advisor for tailored advice based on specific facts.

Risks and Challenges in Infrastructure Mutual Funds?

Investors should be aware of the risks and difficulties associated with investing in funds related to the infrastructure sector.

Sector-specific risk

Funds in the infrastructure sector are subject to the risks and uncertainties inherent in the industry they invest in. These include shifts in regulations, policy reforms, environmental concerns, project delays, overspending, risks associated with execution, competition, and imbalances in supply and demand. These elements may have an impact on the funds’ and infrastructure companies’ performance and profitability.

Cyclical risk

Funds in the infrastructure sector are susceptible to changes in the market and in economic cycles. When there is a strong demand for infrastructure and the economy is expanding, they typically perform well. But, in times of economic slowdown and low demand for infrastructure, they also frequently perform poorly. As a result, investors must carefully consider when to enter and exit these funds.

Concentration risk

Funds for the infrastructure sector may have a large percentage of their portfolio invested in a small number of companies or subsectors. Due to their increased reliance on the success of those businesses or subsectors, this may result in an increase in their volatility and risk. Consequently, before investing, investors should review the allocation and portfolio diversification of these funds.

Final words!

Infrastructure Mutual Funds give investors a way to get involved in the expansion and development of important industries that are the backbone of a country’s development. You can make wise choices that support your financial objectives by being aware of the features, best funds, and possible hazards connected with infrastructure investments. When it comes to investing, maximizing the potential of infrastructure mutual funds can be a methodical step toward steady, diversified returns over the long run.

Moreover, investors can seek assistance just by calling us at 7834834444.

Disclaimer

Please remember that all of the Infrastructure Mutual Funds are selected purely based on past performance, and none of them offers any assurance of future returns. Do your research thoroughly before choosing to invest in any of these mutual fund plans. Investments in infrastructure mutual funds are subject to market risk. Please read through all of the available materials before deciding to invest.

Note that RKFS does not necessarily support any particular infrastructure mutual fund plan; rather, the information above is offered solely for educational purposes. Your investment in any of the aforementioned plans may result in a profit or loss, but we are not liable for it.

Frequently Asked Questions

What are the Risks Associated with Infrastructure Mutual Funds?

Infrastructure funds are subject to risks pertaining to governmental policies, project implementation, and economic cycles. Infrastructure projects’ protracted gestation periods may also have an effect on the fund’s liquidity.

How Can I Assess the Performance of Infrastructure Mutual Funds?

Examine past performance, returns that account for risk, and the track record of the fund manager. Think about things like portfolio diversification, expense ratio, and how well the fund fits into your overall investing objectives.

Can NRIs Invest in Infrastructure Mutual Funds in India?

Indeed, Indian mutual funds for infrastructure are accessible to non-resident investors (NRIs). The Securities and Exchange Board of India’s (SEBI) regulations may apply, but they may use the NRE or NRO accounts for this.

What is the Ideal Investment Horizon for Infrastructure Mutual Funds?

Infrastructure projects by their very nature require these funds to have a long investment horizon. To reach their full potential, investors ought to think about holding them for at least five to seven years.

Are Infrastructure Mutual Funds Tax-Efficient?

Mutual funds for infrastructure are taxed similarly to equity funds. Gains are taxable at 10% on amounts over ₹1 lakh and are deemed long-term if held for more than a year.

How Much Should I Allocate to Infrastructure Mutual Funds in My Portfolio?

Your overall portfolio strategy, investment objectives, and risk tolerance all play a role in how much money you allocate to infrastructure funds. It is generally recommended that you invest 5–10% of your equity portfolio in infrastructure funds.

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