In the first half of 2024, infrastructure and defense-based mutual funds have seen strong returns, with infrastructure funds firmly leading as the returns winner. The demand for infrastructure development in India remains strong, with government projects, increased public spending, and private investments driving this momentum. Thus, infrastructure mutual funds offer a unique investment opportunity for investors searching for a theme closely associated with participation in (and benefit from) India’s economic backbone.
What are the Reasons the Infrastructure Funds are Leading in 2024?
The impressive growth of infrastructure funds in 2024 can be attributed to several factors:
1. Government Initiatives:
The Indian government’s ambitious plans to support infrastructure development through the National Infrastructure Pipeline (NIP) initiative have driven increased spending and execution on highways, ports, power, and urban development, among other things.
The National Infrastructure Pipeline (NIP) for FY 2019-25 is a unique, first-principles, whole-of-government initiative that aims to provide world-class infrastructure to citizens and improve their overall quality of life. The aim is to enhance project preparation and create a compelling case for the private sector to invest in infrastructure.
2. Increased Private Investments:
As these projects supported by national government efforts grow momentum, robust growth among private entities supporting public-issued government projects, ranging from construction to telecommunications and utilities, requires more private sector investment, reflected in regional checkpoints for infrastructure mutual fund investment returns.
There is an added focus on affordable housing as per the latest budget announcements. This will also aid the infrastructure industry at large.
3. Less Volatility:
These infrastructure and utilities regional companies are not unfazed by downturns but generally perform well and have relatively less volatility with long-term contracts and stable cash flows, and accordingly made these by quantitative metrics mutual funds which hold infrastructure and utility funds appealing during periods of uncertainty for investors.
Top Infrastructure Funds Which are Leading Returns in 2024
Here are the leading infrastructure mutual funds with the best performance thus far in the first two quarters of 2024.
1. Bandhan Infrastructure Fund – Direct Fund- Growth
Category: Sectoral/Thematic
Fund Size: ₹ 1964.83 Cr
Expense Ratio: 0.85%
Return: 73.68% annualised returns in 1 year, 33.96% in 3 years and 33.9% in 5 years as on NAV as on 12th September 2024.
Overview: The Bandhan Infrastructure Fund is now established and ranked as one of the winners in early 2024 based on primary target allocations into sectors of public utility, primarily power, construction, and transportation efficiencies and demand. The fund is flexible in its overall composition, and sectors in infrastructure and utility rapidly develop for potential.
Reasons to Invest:
-
- Strong allocation in high growth sectors within roads development and bridging per potential participants.
- Strong team with known and accredited managers and experienced professionals (partnership).
- Experienced public, private, and civil entities and understanding of regional infrastructure framework investments in the context of public infrastructure buildout.
2. LIC MF Infrastructure Fund- Direct Fund- Growth
Category : Sectoral/Thematic
Fund Size : ₹ 725.1 Cr
Expense Ratio : 1.42%
Return: 76.88% annualised returns in 1 year, 35% in 3 years and 32.05% in 5 years as on NAV as on 12th September, 2024.
Overview: LIC MF Infrastructure Fund has provided excellent returns and has constantly become a favorite among long-term equity-oriented investors. The fund invests significantly in energy, transportation, and real estate, thus leveraging investment sentiment against ongoing infrastructure development nationwide.
Reasons to Invest:
-
- Focus on large-cap companies in the infrastructure space, which are likely to benefit from contracts with the central and state governments.
- Steady cash flow from core infrastructure companies.
- Great potential in risky investment choices.
3. Invesco India Infrastructure Fund- Direct Fund- Growth
Category : Sectoral/Thematic
Fund Size : ₹ 1659.96 Cr
Expense Ratio : 0.71%
Return: 68.93% annualised returns in 1 year, 33.49% in 3 years and 35.36% in 5 years as on NAV as on 12th September, 2024.
Overview: The Invesco India Infrastructure Fund has been consistently good, focusing investments on companies that benefit most from infrastructure spending in construction, telecommunications, and utilities. This fund is easy to navigate; it can be called extensively balanced and accommodating. Hence, the risk-return ratio is moderate, but it has the potential for high returns.
Reasons to Invest?
-
- Strong focus on mid-cap infrastructure companies (with growth potential).
- Under-extensive representation of portfolio sectors such as logistics and telecommunications.
4. Kotak Infra & Economic Reform Fund- Direct Fund- Growth
Category : Sectoral/Thematic
Fund Size : ₹ 2446.66 Cr
Expense Ratio : 0.61%
Return: 56.03% annualised returns in 1 year, 32.79% in 3 years and 32.3% in 5 years as on NAV as on 12th September, 2024.
Overview: The Kotak Infra & Economic Reform Fund has benefited from rapid economic reforms in India, investing in sectors that directly benefit from economic policy changes ie., railways, housing, and industrial projects.
Reasons to Invest?
-
- Focus on long-term economic reforms that accelerate growth of infrastructures to the benefit of investors.
- Equal representation of portfolio sector warrants stability, alongside potential advancements in large-cap and mid-cap stocks.
5. Canara Robeco Infrastructure Fund- Direct Fund- Growth
Category : Sectoral/Thematic
Fund Size : ₹ 886.99 Cr
Expense Ratio : 0.96%
Return: 56.03% annualised returns in 1 year, 32.79% in 3 years and 32.3% in 5 years as on NAV as on 12th September, 2024.
Overview: Canara Robeco Infrastructure Fund has exhibited strength with a portfolio focus on sectors, such as construction, engineering, and power sector. This fund has fortified endurance around growth and potential high-risk allocation which stands to favour an appealing exit for long-term investors.
Reasons to Invest?
-
- The construction and engineering sector has been a beneficiary of governmental initiatives towards urbanization of neighboring counties.
- An investment in this infrastructure fund will ensure continual returns alongside investment from government-related contracts regarding government stimuli and consistency manifested from projects related to infrastructure.
Attributes Which Differentiate These Funds
1. Sector-Driven Growth: The strongest-performing infrastructure funds have immeasurably benefited from the heightened attention placed on infrastructure building, leading to increased allocations in the power, transport, and construction sectors.
2. Government Policy: Initiatives like the National Infrastructure Pipeline (NIP) and other policies significantly support infrastructure companies. Funds heavily anchored in these sectors deliver substantial returns.
3. Diversification: One feature is industry and sector diversification across energy, transportation, telecommunications, and utilities, which reduces risk and provides the potential for enhanced returns.
4. Long-Term Time Horizon: Infrastructure building and development takes time. Funds operating with a long-term time horizon are optimally positioned to sustain growth over time.
Final Thoughts
Infrastructure mutual funds outperformed a bulk of the sectoral funds in 2024, providing investors with strong returns and diversification benefits as well. With government-supported outcomes and private spend growing to support infrastructure spend, the infrastructure funds should remain well positioned for strong performance going forward. However, as with all investments, it is important for a prospective investor to consider their own investment time horizon, risk appetite and financial goals before deciding to invest in the infrastructure funds.
