Infrastructure funds represent one section that has seen the launch of several mutual funds over the past several years. With so much attention focused on this sector, these funds are on the radar of many investors who have either put money in these funds or are contemplating the options.
There has been some disappointment as infrastructure funds have lagged most categories of funds in terms of returns. However, there are several points that need attention as they will benefit from looking at this aspect while evaluating options.
Think beyond a few years: Investors have to understand that the infrastructure sector and the various developments related to it is not a short-term activity. Activities here will happen for a long period of time, as it will take years for the investments to pay off in the Indian infrastructure space..
Companies working here are playing for the short term and the opportunities that are present will not just go away in one or two years. On the other hand, returns too will not be immediately visible. Keeping this in mind the entire investment has to be structured accordingly. There should not be large expectations of short-term gains. Hence, the benefits over a period of time should be the aim.
Analysing existing performance: If the actual performance of the infrastructure funds is seen, then at the current juncture the category as a whole is witnessing a negative return over the past one as well as three-year time frame. In the last one year there has been a weak performance of the infrastructure stocks and this is the reason why the funds are showing a slightly negative performance.
The returns of most of the funds present in this space are in the range of negative 3 per cent to 8 per cent over the last one year at the middle of January 2011. In comparison to other this sector has underperformed.
In the midst of this entire state it also becomes an opportunity.
Sector holdings: There are different ways in which the funds define the infrastructure space and how this will actually operate in terms of their portfolio composition. Some funds give importance to the energy space where this is considered as a major part of the infra space, while others have put faith in banking stocks that are present in lending to this sector.
Stocks from the metals, construction and engineering sectors are the ones that will find a place in the funds depending upon the position of each specific fund. In this regard the stock prices of most of these areas have remained a bit weak in the last three years especially as a lot of them were at record high levels before the economic crisis hit, and hence, dragged down the overall performance.
Investment considerations: There is one point on which most economists as well as experts agree and this is that there is tremendous opportunity in the infrastructure space as there is a lot of work to be done.
These are not meant for people aiming at quick gains, but are actually meant for long-term investors who would like to gain from the overall development.
Before making any choice investors should also ensure that they look at the portfolio of these funds carefully. Also actual participation in the development of infrastructure in the country will be the key to gains in the coming years.
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