Are Infrastructure Funds Worth Keeping To Diversify Investments?

The current infrastructure story in India is based almost entirely on government spending. It has allocated Rs 111 lakh crore ($1.4 trillion) under the National Infrastructure Pipeline (NIP) for FY2019-25. Sectors such as energy, roads, urban and railways form the bulk of this allocation. Around 71 per cent of the projected infrastructure investments in India is towards these sectors. In addition, some large programmes were announced or older ones expanded in Budget 2022. The capital expenditure outlay for 2022-23 has been increased sharply by about 35 per cent to Rs7.5 lakh crore from Rs 5.54 lakh crore. The target to expand the national highway network has been set at 25,000 km. Rs 48,000 crore has been directed towards the Pradhan Mantri Awas Yojana.  
With so much being announced, it is understandable if investors think infrastructure is sector worth investing in, and infrastructure funds that fund houses offer seem a logical investment avenue. But take a closer look at these funds. In most cases, these funds are very broad based and tend to have overly diverse portfolios. They cover a wide range of sectors such as construction, engineering, telecom, transportation, power, cement, oil and gas, chemicals, IT services and more. Even generally, it is difficult to pin point which sectors come under infrastructure and which don’t. 

Informed investors who consider infrastructure funds are generally those who have some understanding of the sector or have already allocated to various market-cap oriented funds and are looking at sectoral funds as an addition or supplement to their main portfolio. Based on these, the investor may look at very specific funds such as IT or telecom of construction.  

So, what are the options if one wants to diversify. Based on the individual’s risk profile, one or more multi-cap funds may be considered. These funds also have a finger in all pies but the selection is pegged to diversification based on market capitalisation. Broad-based index funds too are an option as they cover many sectors at the same time and simply mimic the index they track. Specific sector funds that have a narrow focus could also be added, provided the investor fully understands the attached risk.