These are among worst performers in the market. Switch, if you don’t have a long investing horizon
In a market which has little good news for investors, unit holders of infrastructure funds have a sadder story to tell. In the past two years, they are the only category to have given returns that are negative, of minus two per cent.
The story in the past year is no different. The category average return is minus 18 per cent. Some schemes have fallen as much as 38 per cent. The Sensex and Nifty, in comparison, have returned minus 8.5 per cent and a little over three per cent in the past one and two years, respectively.
| WORST PERFORMER | |||
| Returns % as on September 7, 2011 | |||
| 1-year | 2-year | 3-year | |
| Infrastructure funds | -18.85 | -1.81 | 3.49 |
| Equity diversified funds | -9.83 | 5.83 | 8.68 |
| Sensex | -8.47 | 3.22 | 5.62 |
| Nifty | -8.55 | 3.51 | 5.60 |
| Source: Value Research | |||
However, asset management companies are upbeat about this theme. According to Ramanathan K, chief investment officer, ING Investment Managers, infrastructure stocks have seen a very heavy correction in their valuations, which has made this space a very attractive buy. "This is a good time to enter the infrastructure space," he says.
Financial advisors are not so sure. Policy paralysis, less government spending and various scams are the main reason for this sector's failure. Add to that the high interest rate regime, new land acquisition norms, high competition and less projects being awarded, and the sector seems in for a long haul.
No wonder, redemptions are up. Dhruv Raj Chatterji, senior research analyst of Morningstar India Research, says these funds have seen heavy redemptions due to underperformance and this has accentuated their woes. Between June 2010 and June 2011, these funds saw outflows of nearly Rs 3,000 crore. The organic growth rate of infra funds (outflow as a percentage of assets in the beginning of the year or fund size) is in the range of 35 to 40 per cent.
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Most market experts are underweight on this and related sectors - power, capital goods, infrastructure. There is not much scope for things to improve, at least in the near term, they say. Hence, they advise investors to look at trimming their holding in infra funds. Mutual fund distributors recall clients investing as much 80 per cent of their portfolio in infrastructure in 2007 and when markets bounced back in 2009. And, most of this was in lump sums. Such investors, distributors say, are sitting on huge losses. Those who invested via a systematic investment plan are slightly better off.
"Most investors come with a timeframe of a maximum of five years. Thr last two years have been bad and it may take another two years for the sector to recover. These investors should book losses and invest in a safer equity diversified fund," suggests Hemant Rustagi of Wiseinvest Advisors. And, you can participate in the infra growth story even through equity diversified funds. These funds have returned a negative 10 per cent in one year and almost six per cent over the past two years.
Infra projects have a very long gestation period, from five to seven years. If you have a similar investment horizon, you could hold on to your money in infra funds but only up to five to 10 per cent of your portfolio.
"There is no substitute to equity diversified funds in a portfolio, irrespective of the market condition. Those who have a surplus can dabble in this theme because it has a long-term growth story," says Akshay Gupta, CEO, Peerless Mutual Fund. If already invested, he advises, wait to cut losses and then move the money into equity diversified funds.
Remember, these are thematic funds and carry all the risks associated with concentrating on a single sector. The basic idea of investing through mutual funds is that they help a person take exposure to different sectors, leading to lower risks.