What are Infrastructure Mutual Funds


Robust infrastructure is paramount for any economy, more so for a developing economy.

It is the bedrock on which all growth takes place.

It is imperative not just for present growth but also the sustainability of it in the future.

Infrastructure involves quality roads, railways, airports, etc. which can help a country propel its growth further.

This helps not just in overall economic growth but also easy movement of people.

Many emerging economies owe their economic success to the availability of strong infrastructure and therefore governments across the globe understand that it is not merely another economic policy but rather a necessity.

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What are Infrastructure Funds?

Infrastructure mutual funds are those funds that invest in companies involved in the infrastructure space, directly or indirectly.

They are thematic funds since they invest in a particular theme, infrastructure.

These funds invest in companies involved in sectors like:

  1. Construction
  2. Finance
  3. Chemicals
  4. Energy
  5. Communication etc.


Additional reading: Click Here to read about the various types of equity mutual funds


Should you invest in a Infrastructure Fund?

If you do, consider the following points before diving in:

Minimal Exposure

A thematic mutual fund should have limited exposure in your mutual fund portfolio.

It should be a part of your satellite portfolio and never be a part of your core portfolio.


Understanding the theme

Only invest if you do and can understand the theme well.

This involves being able to understand reasons behind past performances as well as the ability to forecast future prospects.

This does not involve investing blindly on past performances.


Long Duration

You should consider a thematic mutual fund scheme only if you are ready to stay invested for the long haul.

This means staying invested for seven years or more.

This is important since sectors go through various phases and cycles.

You should be able to go through all phases and cycles to make meaningful returns.


Entering the fund

As previously mentioned, sectors go through various phases and cycles.

If you enter a thematic or sectoral mutual fund scheme during a peak,  you may most likely be sitting on moderate returns for a considerable amount of time.


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Features of an Infrastructure Fund

Since infrastructure funds are thematic, by nature they are extremely volatile. One therefore needs to be well researched on the various sectors as well as the underlying investment strategy of the fund. How you invest is more significant than how much you invest. It is better to spread your investments than to jump in to the fund in one go.


As alluring as past returns might seem, they are never a guarantee for future success. Irrespective of how aggressive your risk profile might be, it is better to limit your exposure to an infrastructure fund to below 15%. This is true for all thematic and sectoral funds and not just for infrastructure funds.


Any infrastructure project takes time to complete, therefore by default you need a longer time horizon. Infrastructure projects also tend to be embroiled in bureaucratic hurdles so that’s another point to factor in. This is precisely why infrastructure funds need a longer time horizon to stabilize.


Additional reading: Click Here to read about how Inflation is destroying your hard earned money.

When are Thematic and Sectoral Funds launched?

It is generally seen that a Fund House would launch a scheme if it does not currently have one in a category. With SEBI not permitting a Fund House to have more than two schemes in the same category, the timing of the launch becomes all the more important considering that major business is expected and driven during a NFO.


With Thematic and Sectoral Funds though, the timing of them is very much dependent on the narrative that is propounded.


For example look at the launch dates of these IT based Mutual Fund Schemes.



Launch Date

Aditya Birla Sun Life Digital Fund

Jan -00

Franklin India Technology Fund

Aug -98

ICICI Prudential Technology Fund

Mar -00

SBI Technology Opportunities Fund

July -99



The reason for all these Funds being launched between 1998 and 2000 is because this was supposed to be the time of the IT boom in India.


The IT sector in 1998 contributed 1.2% to India’s GDP. The TIDEL Park, the then largest IT park in Asia was opened in the year 2000.


The Information Technology Act was also passed in the year 2000 which paved the way for legal procedures for electronics transactions and e-commerce.


All of the above factors did help in creating a positive market environment for the IT sector to boom and various AMC’s were not going to be left behind to milk this.


This therefore led to the launch of several IT based Mutual Fund Schemes in the space of just 2 years.


We have thus seen how the positive scenario around one particular sector helped in driving investors towards a particular Mutual Fund Scheme.


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When should you Enter and Exit in Thematic and Sectoral Funds?

 When you enter and when you exit a thematic and sectoral mutual fund is extremely vital. This becomes all the more important when it comes to a lump sum amount (Which should be avoided in most cases).


The reason for this is that these funds invest in cyclical businesses and ergo they themselves are cyclical funds. Take the example of real estate, you must have often read or heard the real sector is down or the real sector is booming. 


This is not to say that other equity funds do not have their own volatility but with thematic and sectoral funds, volatility is more frequent and at a higher level.


If you enter a thematic fund at a high and exit at a low then the entire exercise was futile. This means you cannot have a strict timeline with these funds, you cannot pick a year when you enter and a year when you exit. You would need to be extremely flexible and clever with your timing of entry and exit in these funds.


Keep in mind that the fund manager has his/her own strategy in place for entry and exits, if your timing does not align with that of the fund manager then that is a cause for major worry. 


You cannot predict the actions of the fund manager, that is beyond your control but what is within your control is your actions. So the prudent thing would be to leave timing completely up to the manager when it comes to the fund portfolio, you would still need to take your own calls with your own portfolio.


One of the biggest blunders that investors commit with these funds is looking at past returns and investing blindly expecting the markets to continue with its upward trend. When the markets slide investors exit with a heavy loss since they entered at a market high and exit at a market low.


This process of entering with greed and exiting with regret is very common and will continue as long as investors look at their portfolio with goals and not desire.


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Disclaimer : While due precaution has been undertaken in the preparation of this article, The Mutual Fund Guide or any of its authors will not be held liable for any investments based on the above article. The above article should not be considered financial advice and has been published only for your perusal. Due credit has been given in case wherever required, in case you feel any part violates any rights then do get in touch with us and we shall get it duly removed.  
Mutual Fund investments are subject to market risks. Please read the offer document carefully before investing

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