Every year sees a different set of diversified equity mutual funds coming out on top. In the last one year, it has been the turn of infrastructure schemes.
Perchance, retail investors should take these schemes for that extra zing
MUMBAI: Every year sees a different set of diversified equity mutual funds coming out on top. In the last one year, it has been the turn of infrastructure schemes.
Seven out of the top 10 schemes have an infrastructure theme. “Lately, infrastructure related schemes are seen to be doing well as a direct consequence of the underlying capital goods sector outperforming the broad market,” says Sandeep Shanbhag, director A N Shanbhag NR Group, an investment and tax advisory.
Infrastructure schemes, in turn, have been doing well because of the underlying infrastructure stocks doing well.
So much so, even schemes that have done well without having the infrastructure tag attached, have a significant investment in infrastructure stocks.
Investors have clearly taken to investing in these schemes (see table). Take the case of JM Basic Fund, the best performing scheme in the last one year. The assets under management (AUM) of the scheme have gone up from Rs 9 crore as on October 31, 2006 to Rs 826 crore as on October 31, 2007.
The health of the infrastructure sector is also an indicator of the health of an economy. It follows therefore that if the Indian economy continues to do well, infrastructure stocks will continue to do well, and so will infrastructure schemes.
Therefore, for investors ready to bet on the India growth story, infrastructure schemes make perfect sense, even in the days to come.
“We believe that infrastructure is a multi-year theme” Sandesh Kirkire, chief executive officer, Kotak Mutual Fund said at the launch of Kotak Indo World Infrastructure fund.
“These schemes are expected to grow by 30% to 40% a year over the next two to three years,” said Shanbhag.
According to the experts, even if infrastructure is not the top-performing sector next year, investors can expect infrastructure schemes to generate substantial returns.
All the same, there is a certain amount risk that comes with investing in these schemes, too.
“An increased concentration of these schemes into similar stocks ipso facto makes them sectoral schemes and consequently increases the risk. For example, the price-to-earnings ratio of L&T is in the region of 66, whereas that of BHEL is 44 times. If the market were to correct, it is these stocks, which have run up substantially, that will be affected,” said Shanbhag.
The biggest advantage of investing in infrastructure schemes or for that matter any other sector-specific scheme is that when the particular sector does well, the scheme also does well. And that is its biggest disadvantage as well. According to Shanbhag, if infrastructure stocks were to take a beating, so will infrastructure schemes. Given this, retail investors should not have infrastructure schemes as their core holding and are best advised to invest in infrastructure schemes to provide that extra zing to their overall returns.
Disclaimer: The writer has investments in JM Basic Fund.
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