Invest in Top Infrastructure Mutual Funds In 2022: High Return Mutual Funds In India
India is one of the world's fastest-growing economies. As India grows and the income of people rises, the Government needs to provide basic infrastructure facilities to its citizens. The Government, in partnership with private companies, needs to invest trillions of dollars to build infrastructure facilities like airports, roads, railways, seaports, healthcare facilities, education facilities, etc. It is a brilliant opportunity for infrastructure companies to capitalise on and provide excellent returns to their investors. Infrastructure mutual funds have done well in the last few years, providing handsome returns to investors. This article focuses on how to invest in top infrastructure mutual funds in 2022.
What are infrastructure mutual funds?
Infrastructure mutual funds or infra mutual funds are sectoral mutual funds that invest in shares of infrastructure companies. As per SEBI guidelines, a sectoral fund is an open-ended equity scheme that has to invest a minimum of 80% of its total assets in equity and equity-related instruments of specific sector companies (infrastructure sector in this case).
Some of India’s biggest infrastructure companies include Larsen & Toubro (L&T) Ltd., GMR Infrastructure, IRB Infrastructure, Adani Ports and SEZ, Dilip Buildcon, etc. Infrastructure mutual funds invest in the shares of these companies.
Best infrastructure mutual funds to invest in
Let us look at the
(Direct Plan - Growth options)
|Quant Infrastructure Fund||402||62.03%||37.80%||23.63%|
|Invesco India Infrastructure Fund||449||31.29%||26.43%||16.91%|
|BOI AXA Manufacturing & Infrastructure Fund||72.53||31.12%||27.03%||16.57%|
|Franklin Build India Fund||1,147||24.93%||19.14%||13.29%|
|SBI Infrastructure Fund||777||26.30%||21.35%||13.18%|
Who should invest in infrastructure mutual funds?
Investors willing to allocate a small part of their investment portfolio to sectoral funds such as the infrastructure sector may consider investing in infrastructure mutual funds. But, please note that investing in an infrastructure mutual fund will lead to sectoral concentration in your investment portfolio, which is the opposite of diversification, which most investment advisors recommend. So, if you are an aggressive investor with a high-risk appetite, you may invest some amount in an infrastructure mutual fund scheme.
Taxation of infrastructure mutual funds
For taxation purposes, infrastructure mutual fund schemes are treated as equity schemes and taxed accordingly.
- Short-term capital gains (STCG) tax: If you sell your infrastructure mutual fund scheme units within twelve months of purchase, the capital gain will be classified as short-term capital gain (STCG). The short-term capital gain (STCG) tax will be levied at 15%.
- Long-term capital gains (LTCG) tax: If you sell your infrastructure mutual fund scheme units after twelve months of purchase, the capital gain will be classified as long-term capital gain (LTCG). Every financial year, the first Rs. 1 lakh long-term capital gain will be exempt from taxation. The incremental long-term capital gain above Rs. 1 lakh will be taxed at 10%.
Risks involved in infrastructure mutual fund schemes
Infrastructure mutual fund investors are exposed to equity risk and sector concentration risk within equity. All equity mutual funds, including infrastructure mutual funds, are subject to market risks. Whenever there is an adverse event like recession, war, pandemic, political instability, inflation, etc., the entire market undergoes a correction. During such events, infrastructure shares also sell off along with the broader equity market. It leads to a fall in the NAVs of infrastructure mutual funds.
Infrastructure as a standalone sector is also vulnerable to a sell-off. For example, during the 2008 Subprime crisis, shares of infrastructure companies saw a big fall. In 2009-10, the overall market recovered, but most infrastructure companies didn’t recover due to their high leverage, order cancellations, etc. Such events can lead to a big fall in the NAV of infrastructure mutual funds leading to losses for investors.
Return potential of infrastructure funds
In 2021, some infrastructure mutual funds were among the best performers after technology mutual funds. The table in the above section shows how some of the infrastructure mutual funds have given returns in the range of 16-20% CAGR in the last five years. These are good returns for investors of infrastructure funds.
In the last few years, the Government has turned its focus on building infrastructure. The Finance Ministry has been increasing capital expenditure, year after year, in the union budget for infrastructure projects.
The Government has been awarding contracts for building highways, railways, airports, seaports to various private companies, PSUs, and consortiums of companies. As a result, infrastructure companies have reported good growth in their revenues and profit. It has led to a rise in the share prices of infrastructure companies, resulting in good gains for investors of infrastructure funds.
The current order book and projects pipeline for infrastructure companies are very good for the foreseeable future. So, infrastructure companies will continue to do well, which can lead to good returns for investors of infrastructure mutual funds.
Advantages of infrastructure mutual funds
The biggest advantage of an infrastructure mutual fund is that it gives you an opportunity to participate in India’s growth story. Infrastructure companies are sitting on huge order books, and the projects’ pipeline for the future is also very good. As infrastructure companies execute existing orders and new orders, their revenues and profits will continue to grow at a healthy pace. It will boost the share prices of infrastructure companies and the net asset value (NAV) of infrastructure mutual funds.
If you invest in a good infrastructure mutual fund, it has the potential to give you inflation-beating high returns and thus create wealth for you.
Reasons to invest in infrastructure mutual fund schemes
Some of the reasons for investing in infrastructure mutual funds schemes include:
- It gives you a minimum of 80% exposure to the infrastructure sector, which is doing well currently and has the potential to continue to do well in the foreseeable future. Infrastructure mutual funds have the potential to create long term wealth
- Favourable tax treatment of an equity mutual fund scheme
Asset allocation: Diversification is the key
An infrastructure fund will give you exposure to only infrastructure companies and hence has concentration risk. As per the asset allocation strategy, you should diversify within and outside the equity asset class. Within equities, your investment portfolio should have exposure to other sectors apart from the infrastructure sector. You can do that by investing in diversified large, mid, and small-cap mutual fund schemes. Outside equities, you should diversify into debt, real estate, gold, etc.