Fate and Prospects of Infrastructure Funds

Everytime a bull run happens on the stock market, there will be one sector which would lead. For instance Information Technology (computer) companies led the 2000 rally and Infrastructure companies led in 2008. Naturally there would be a craze among investors to invest in these so called 'winning' sectors. And lots of mutual fund companies launch new funds aimed at investing in these sectors to catch up investors facination. And the end result is quiet obvious - when the market crashes, these are the funds which caught investors fancy also crash.

Now what do these investors do with these funds. Inspite of market recovery, many of these infra stocks have not recovered. Hence all these infrastructure funds are stagnating. Here are a few facts to evaluate:

• First check how much percentage of your total investment is in this infra sector. Ideally they could be restricted to a maximum of 5% of your overall portfolio. In case you have more than 5%, then it is time you trim off these excess value.
• Many investors would be invested in Infrastructure - new fund offers. As a result they could be having many infra funds in their portfolio. Ideally you can retain one good infrastrure fund and exit the rest.
• Success in equity funds are higher only if you invest additionally when the prices are lower. Hence do top up your investment, subject to 5% cealing.
• Infastructure sector primarily comprises of companies dealing with steel, cement, construction, contracting, logistics, banking, painting, construction equipments manufacturing. And infrastructure development takes places primarily on borrowed money - like home loans etc. Hence a lower interest rate is required for this sector to fourish. Going forward, we can expect some revival in the sentiments, resulting in infra stocks picking up. As mentioned, investors can have a small allocation to good quality infrastructure funds and invest the rest in diversified funds. At the end, it is the fund managers duty to invest in stocks / sectors which would do well.