Skip to main content

Infra Theme - With 3-5-yr horizon will find it rewarding

   Infrastructure was touted as the most happening sector in 2008. Every big fund house launched an infrastructure fund, and investors were more than happy to pour money into them. But now, three years later, it is a different story. Infrastructure funds are languishing at the bottom in terms of returns and many disappointed investors are pulling out money from these schemes. The CNX infrastructure index has slipped 21.3% in the past year compared to an 11.6% fall in the Nifty. While Reliance Infrastructure Fund has lost 39%, most other funds have lost more than 20% over the past year.

THE GROUND REALITY

The infra segment has been going through a rough patch for the past 18 months due to several reasons. Primary amongst them are issues related to land acquisition and an increase in project costs and higher working capital.

Land acquisition continues at a snail's pace, posing problems for several infrastructure projects. In the power sector, there are delays in payments by state electricity boards, especially to power generating companies. Last but not the least, costs of raw material such as coal have increased and there are issues regarding their availability. All this has severe repercussions for any infrastructure project. Project costs across power, roads are going haywire and companies need higher working capital. Infrastructure projects are extremely capital intensive. If companies need more money to manage their working capital, they will have to borrow more. This pushes up their interest costs and affects their margins. Funding is another issue for infrastructure projects. Banks generally don't fund projects with very long gestation periods. The interest rate cycle is on an uptick, adding to infrastructure companies woes. The central bank, in an attempt to control inflation, has raised interest rates 10 times since March 2010. "The cost of finance is the major problem for infrastructure projects. The cost of funds is too high and makes many infrastructure projects unviable. Finally, the infrastructure segment, to a large extent, depends on spending from the government as well as its policies. Over the past year, the government, beleaguered by many issues, has been slow in rolling out infrastructure projects. A crucial bill relating to land acquisition is still stuck. This has led to a delay in sanctioning and closure of new projects in the infrastructure space.

IS THERE A WAY OUT?

Infra funds have been underperforming the broader indices for three years. As per data available with Valuersearchonline.com, which tracks the mutual fund industry, while the universe of infrastructure funds returned 2.45% per annum, the Nifty returned 4.15% per annum. Worse, many experts believe the immediate future of these funds don't look bright. In the short term, there could be more downside," says Vishal Dhawan, founder, Plan Ahead Wealth Advisors.

However, many still swear by the theme. Their argument is simple: For the India story to roll on, infrastructure building is a must. The country can't do without a robust infrastructure if it has to grow the GDP at 8%. Be it roads, ports, water, power or metro rail systems, all of these are crucial to support growth.


Good infrastructure is a basic support system of the economy and is needed to facilitate high growth rates. Hence, it is imperative that the government resolves issues relating to infrastructure growth.


Secondly, the cost of funds, a major input for the sector, may come down soon.
The cost of finance is the major problem for infrastructure projects. We need a situation where we can finance projects easily. Many now believe that the interest rates are close to their peak levels.


As of now, there are indications that there may be at best one more rate hike before the central bank pauses. Clearly, if rate hikes slow down, companies in the sector will heave a sigh of relief.

SO WHAT SHOULD YOU DO?

Investors in these funds are disappointed. Infrastructure funds have severely underperformed for three years, with many investors losing 20%-40% of their money in the past year alone. However, many experts don't want you to exit these schemes, as they believe they can deliver in the long term. There is no point in exiting your investments at this point at a loss when the future is bright. Long-term investors should stay put. Investors should realise that though investment in infrastructure starts early, returns often come in late but at a faster rate and, hence, investors must be patient and have a 3-5-year time horizon while investing in such funds.


New investors should first figure out if sectoral funds, especially infrastructure funds, will meet your requirements. Sectoral funds carry high risks and are meant for individuals with a higher-risk appetite. Investment advisors do not recommend such funds to investors with a low-risk appetite. Unlike in a diversified equity fund, where the fund manager takes a call, in a sectoral fund, an investor should be in a position to understand or assess the fundamentals of the sector before choosing one. Invest not more than 10% of your portfolio in sectoral funds. Those with a low-risk appetite may consider large-cap diversified equity fund.

Finally, if you have decided to invest in the infrastructure theme, you need to screen the fund portfolios carefully before selecting your fund. Be sure, that it follows the infrastructure theme and is in line with your objectives before you commit your money. Do not commit money in one go, invest in phases over a six-month period, using a SIP.
 

Popular posts from this blog

Post Office Deposits Interest Rates

Best SIP Funds to Invest Online   SIPs are Best Investments when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further information on Top SIP Mutual Funds contact  Save Tax Get Rich on 94 8300 8300 OR You can write to us at Invest [at] SaveTaxGetRich [dot] Com

HDFC Capital Protection Oriented Fund – Series II 36M May 2014 NFO

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300     HDFC Capital Protection Oriented Fund – Series II 36M May 2014 NFO will be open for subscription from 16th May 2014 to 30th May 2014. The key features of the scheme are as mentioned below:   Type of Scheme A Close Ended Capital Protection Oriented Income Scheme Benchmark Crisil MIP Blended Index Fund Manager Mr. Anil Bamboli , Mr. Vinay R Kulkarni & Mr. Rakesh Vyas New Fund Offer (NFO) Period 16 th May 2014 to 30 th May 2014. Minimum Application Amount Rs. 5000 and in multiples of Rs.10 thereafter Plans/ Options Offered Growth and Dividend Payout Facility Liquidity To be listed For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call

How to PPF Account extension after maturity

A PPF account can be retained after maturity without making any further deposits. The balance will continue to earn interest till it is closed. Public provident fund or PPF remains one of the most popular savings options for the long term despite a gradual decline in interest rates over the years. PPF accounts have a maturity period of 15 years and they can be extended. If there is no fund requirement, financial planners say, PPF account holders should extend the account beyond 15 years. In terms of income tax implications, PPF accounts enjoy the benefit of EEE (exempt-exempt-exempt) status . Under Section 80C, contribution up to Rs 1.5 lakh in a financial year qualifies for income tax deduction. The interest earned and maturity proceeds are also tax free. What are your options when a PPF account matures? 1) A PPF account can be closed after the expiry of 15 financial years from the end of the year in which the account was opened. 2) The subscriber can retain his

SUNDARAM SELECT MIDCAP

Best SIP Funds Online   SUNDARAM SELECT MIDCAP is a mid-cap focused fund has shown remarkable consistency in outperforming both its benchmark index and the category over many years. It takes a sharper tilt towards mid-caps compared to its peers. While the fund manager used to take large positions in his conviction picks, he has moderated exposure to his top bets over the past year. He has also chosen to stay away from capital guzzling businesses instead favouring those with efficient capital allocation practices. SUNDARAM SELECT MIDCAP fund boasts of a superior risk-reward profile compared to many of its peers, and while it has underper formed slightly over the past one year, its proven track record in the hands of a capable fund manager provides comfort. It remains a worthy pick in the midcap basket. SIPs are when Stock Market is high volatile. Invest in Best Mutual Fund SIPs and get good returns over a period of time. Know Top SIP Funds to Invest Save Tax Get Rich For further inform

HDFC Prudence Fund - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   HDFC Prudence Fund Balanced funds are excellent investment options for investors with moderate risk tolerance, since they give very good risk adjusted returns. It is very surprising why balanced funds are not nearly as popular as diversified equity funds, despite being around in India for nearly two decades. Balanced funds are essentially hybrid funds with both debt and equity in its portfolio mix, to balance the portfolio risk. These portfolios typically hold up to 70% of its portfolio assets in equities and the balance in fixed income. On a risk adjusted basis, balanced funds have delivered excellent returns compared to other equity fund categories, e.g. large cap or diversified equity mutual funds. The chart below shows a comparison of category returns between large
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now