Rs 7.5 lakh crore — That is the amount set aside in the budget this year to fillip India’s infrastructure. In order to become a $5-trillion economy and a developed nation by 2047, as urged by PM Narendra Modi in recent times, the country needs strong and seamless infrastructural facilities. After all, new-age India will ultimately be rooted in good roads, construction, clean energy, and power, among others.
Even India’s 2021-22 Economic Survey concurs. “Infrastructure is the backbone for any economy. The extent and quality of infrastructure determine the ability of the country to utilize its comparative advantage and enable cost competitiveness. It can be a vehicle for social and economic transformation”.
Recently, cabinet minister Nitin Gadkari also proposed opening investment doors in infra projects to retail investors, just like mutual funds, via Infrastructure investment trusts (InvITS). Structurally similar to mutual funds, InvITS essentially pools together investor money to put across assets that will generate steady cash in the long run.
As per Gadkari, these investments, which will have an investment ceiling of Rs 10 lakh per person, assure 7-8% p.a. InvITS usually put money into either road or power projects.
But if you’re looking to invest in India’s growth story and participate in its infrastructural development right now, you don’t have to wait for this. Infra-based mutual funds can add much-needed long-term value-generating capacities to your portfolio.
Infra funds invest at least 80% of their assets in equities of companies engaged in construction, energy, capital goods, communications, metals and mining, and more. However, the gestation i.e developing period for projects in these sectors spans many years. That’s also why these funds can witness extended periods of subdued performance. Infra funds are ideal only for seasoned, long-term investors who believe in eventual wealth creation.
Explains Nema Chaya Buch, Director, Wishing Tree Financial Advisor, “Infra projects usually employ high capital and are highly leveraged. Also, the execution time of these projects is very long, which delays the returns to the shareholders of such companies. That’s because the first priority is to pay off the debt. Hence, such funds do not give a high return in the short-run”.
However, investment in infra has also delivered reasonably high returns over time. The Nifty Infra index has delivered annual returns worth 9.82%. These skyrocketed by more than 5x over the 5-year period, standing at 53.15%. Even the S&P BSE Infra fund generated 23.40% over three years. Over the 10-year period too, returns here have touched double-digits (13.60%).
However, the risks involved are very high. Shifali Satsangee, the founder of Funds Veda, an Agra-based personal finance advisory, says, “Infra funds are seriously influenced by ever-changing government laws and controls. Hence, investors need to have a longer investment time horizon and aggressive risk-taking capacity. It is advisable to take only 5 to 10% exposure of their total investible corpus in such thematic funds, depending on their risk profile. What’s more, it would also do good to investors not to get swayed by recent returns and developments, while making decisions about these funds.”
Financial planner Sajeev Dawar thinks 20% of your portfolio, or the satellite part of it, can comprise such funds.
“For an economy like India with promising growth opportunities, one can bank upon Government commitment on substantial investment in infra strengthening, be it social infra like education, health care, housing or physical infra like roads, dams, bridges, irrigation projects, digitization or renewable energy.”
“It must be kept in mind that the window of opportunity for such funds is limited.. Hence the timing for exit is equally important.. A recent example during Covid -19 compelled lockdown was focused on the healthcare sector. So a lot of investment was directed to vaccine manufacturing, diagnostics, sanitizers, and more. However, as the situation improved focus shifted to long-term infra strengthening to equip ourselves better for such eventualities”, he signs off.
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