We are surrounded by below average infrastructural amenities that otherwise would have made our lives better. The congested roads, frequent power shortages, Air traffic congestion etc are just a few among the numerous problems we face in our everyday lives. This just goes to prove the infrastructural abilities that India actually needs and the scarcity of which, it is currently going through.
The infrastructural funds were introduced during the bull phase of the market, i.e., between 2005-2008. As is the general mentality, most investors rushed in to purchase stocks of such funds, thinking that it will benefit them on a long term basis. But as the housing bubble, this infrastructure bubble also burst. The average 3 years returns of infrastructure funds stand at -1.4% or an accumulated total loss of 4.2%; in comparison with categories like banking, which have gained 15.8% per annum with an absolute gain of 55% over the same period. If we consider the banking sector to be an exception, mainstream multi-cap category, where funds invest across industries and capitalization bands, has given returns of 5.2% a year during the period for a total return of 16%.
Now what made investors get tempted to make such a hasty purchase? Well, the fact that this sector comprises of 29 funds between them have 15,520 crore in assets, as against the 2,786 crore in banking funds and 444 crore in technology funds; most investors felt their lucky streak will go bright. Investors figured out that, there is an increasing demand for infrastructure in India, considering the size of its ever growing population and also people were willing to pay to see the infrastructural developments in their respective areas. With the introduction of products in this sector which consists of 29 funds from 22 asset management companies it seemed to encourage investors. As a result, during the market crash, these funds slumped in their cycle due to increased hype and depression. Most investors entered into debt of home loan, personal loan etc just to finance their requirements which could have been avoided with prudent financial planning.
Ever since, in order to gain market share for these funds, fund managers have tried to create a broad classification of this particular sector. Almost everything like Pharma, FMCG etc can be included in the infrastructure fund category excepting for info tech products. Apart from the government’s diversification of this particular sector, fund managers have tried to include banking and telecom and those industries which will be benefitted from better infrastructure in this fund basket.
What prudent investors need to realize is that if something is in fashion at a point in time, it is not going to last like that forever. Similarly, all kinds of funds have enjoyed their limelight for a particular period of time. The reason why most investors lose their investments is because they were carried away with the success of the infrastructure funds thinking that it will last for long. One thing is certain that although infrastructure will be demanded by all and it is also possible that you might be benefitted from such infrastructure, however, some infra companies and their investors may not have the ability to make such money.
You as a prudent investor, need to bear in mind that, you need to hand over the worries of choosing the right type of sectors to your respective fund managers who then can spend their nights in turmoil to choose the right sectors and stocks for your investments to grow. Try not to boggle your mind as to what type of funds and which sector might do well in the near future. All you need to focus on is to build the right investment portfolio with a set of good diversified funds. Once you have invested, be patient and watch the markets movement in helping your money grow.