Many investors are apprehensive about putting their money in sectoral/thematic funds. However, of these, infrastructure funds parking investors’ money in infrastructure segments such as energy, power, metals, estate, etc. have earned considerable returns over the past five years or more.
Take, for example, the Tata Infrastructure Fund launched in November 2004. This fund regarded as one of the pioneers in the “infrastructure” category has an impressive fund size of ₹945.29 crores and charges an expense ratio of 1.45 per cent which falls in the top 25 per cent of similar mutual funds in this category.
Classified in the “Very High Risk” category, this fund received four-star ratings from CRISIL. Currently, there are 21 funds in the sectoral category.
Like most other sectoral or thematic funds, this fund invests a major portion of its money in large-cap stocks with the remaining amount put in mid-cap and small-cap stocks. This fund suits those best with a good understanding of macro factors and their impact on this fund’s constituent stocks.
Subject to volatility just like other equity funds, investing in this fund is like taking a selective best on this sector bound to do well in the long run. One can start with a minimum investment of ₹5000 and continue with minimum additional investments of ₹1000. If you opt to invest via SIPs, the minimum SIP amount is ₹150.
Tata infrastructure fund has earned around 12.75 per cent returns over the past five years which is much higher than the category average of 11.39 per cent. Since its inception, this fund has yielded nearly 14.08 per cent. This underlines the benefit of including this fund in your long-term investment portfolio.
Assuming one has been investing ₹5000 every month through SIP since its launch, the total invested amount would be around ₹10,80,000. The returns on SIP investments would amount to ₹31,07,559. The earnings on maturity would be ₹41,87,559.
Other similar funds in the sectoral/thematic fund category along with their three-year and five-year returns include:
|Name of the funds|
|ICICI Prudential Infrastructure Growth Plan||2,117||26.40||13.60|
|Quant Infrastructure Growth Plan||667||44.70||23.80|
|Tata Resources & Energy Growth Plan||260||30.40||15.50|
|ICICI Prudential Technology Growth Plan||8,712||29.40||26.90|
|Bank of India Manufacturing & Infrastructure Growth Plan||83||29.40||15.10|
|Nippon India Consumption Growth Plan||241||29.30||16.70|
A word of caution
While returns from this fund are considerably high, one of the disadvantages of investing in these kinds of funds is that these funds invest in one sector alone. Lack of diversification implies that these funds will be subject to extreme tumults when this sector goes through rough times. Take, for example, the IT funds right now that are going through a sharp correction owing to underperformance by IT stock companies.
Muthukrishnan, a Chennai-based Certified Financial Planner says, “Infrastructure funds are sectoral funds. It is wise for a retail investor to avoid sectoral funds. Sectoral funds invest in a sector. This makes the portfolio concentrated on a particular sector. The very purpose of equity fund investing is to get the required diversification. A sectoral fund manager has no option but invests in a particular sector even if there are no opportunities or valuations become abnormally high."
“Instead, if an investor can invest in a flexicap fund, the manager has the discretion to choose sectors. If the Infrastructure sector provides good opportunities, he would definitely invest a portion of the fund in the sector. When it gets overvalued or no further opportunities, he would move to some other sector. So, a wise retail investor should prefer only flexicap funds and completely avoid sectoral funds,” he added.
However, if at all you want to invest in sectoral funds like these, do not allocate more than 10 per cent to this category. Also, do not jump to put in a lump sum amount. Instead, go through small and regular SIPs depending on your financial goals. Also, be prepared to stay invested for the next seven years or more for earning reasonable returns.