Why an infrastructure fund

At present, most segments of the economy face capacity-related constraints. Infrastructure spending has already increased and is expected to accelerate further in the coming years. During the four consecutive year of 8 per cent plus GDP growth, an increase in gross capital formation (GCF) was one of the key factors that sustained high economic growth. Over the next five years, investment is expected to flow into ports, airports, railways, water supply and sanitation.

Risks involved

A certain amount of risk exists with regard to deployment of the money raised by the NFO. “In such funds, the fund house tends to get a lot of money at one time but portfolio construction takes place only gradually, so deployment of the money becomes difficult. The money tends to be sub-optimally utilised at least until portfolio construction is complete,” says Dhirendra Kumar, chief executive of Valueresearch.

Alternatives available

A dozen or so infrastructure funds already exist in the market (see table for names of these funds and their returns). “Some of these funds from Tata, Canara , and ICICI Pru have done reasonably well over a three-year horizon. Though they took a beating during the market downturn, they have done reasonably well in the past,” says Kumar.

What should you do

Investing in any NFO is fraught with risk: a new scheme has yet to prove its mettle in varying market conditions while an existing scheme already has a track record. Says Kumar: “The NFO is avoidable as buying the portfolio of an existing scheme is always a better option than investing in a new fund that has yet to construct its portfolio.” Moreover, he adds that if you have already invested in a couple of diversified equity schemes, you may avoid investing in an infrastructure fund altogether since these schemes would provide you with adequate exposure to infrastructure-related stocks.

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