Best Sectoral Infrastructure Mutual Funds

Best Sector infrastructure mutual funds are a class of equity funds whose asset allocation is made mostly towards equities of companies operating in the infrastructure sector. We have covered the following in this article on the best sectoral infrastructure funds:

Introduction to Best Sectoral Infrastructure Funds

Sectoral infrastructure funds concentrate their portfolio majorly towards equity shares of the companies involved in infrastructure development in the country. These funds are expected to beat the broader benchmarks when the underlying sector and companies are favoured and doing well. Investing in sectoral infrastructure funds gives investors the potential to earn overwhelming returns in the long run. On the flip side, these funds carry a higher risk of concentration due to the nature of their portfolios being concentrated towards equities of the infrastructure sector.

Top Sectoral Infrastructure Funds

The following table shows the top-performing sectoral infrastructure funds based on the past 5-year and 3-year returns:

Who Should Invest in Sectoral Infrastructure Funds?

Investing in sectoral infrastructure funds is suitable for those looking to diversify their portfolio across companies operating in the infrastructure sector. Since the concentration risk associated with these funds is on the higher side, these funds are apt for aggressive investors. Anyone looking to tap on the potential of the infrastructure sector and benefit from the same may consider investing in sectoral infrastructure funds. Investors should have an investment horizon of longer than five years. This helps in mitigating the associated risks to a greater extent.

Taxability of Sectoral Infrastructure Funds

Since sector funds are a class of equity funds, infrastructure funds are necessarily taxed like any other equity fund. The dividends offered by the sectoral infrastructure funds are added to your overall income and taxed at the income tax slab rate you fall under. This is known as the classical way of taxing dividends.

Short-term capital gains are realised if you redeem your units within a holding period of one year. These gains are taxed at 15%. Long-term capital gains are realised on selling your fund units after a holding period of one year. These gains of up to Rs 1 lakh a year are made tax-exempt. Any long-term capital gains over Rs 1 lakh a year are taxed at 10%.

Risks Associated With Sectoral Infrastructure Funds

Sectoral infrastructure funds come attached with the following risks:

• Concentration risk The risk of concentration associated with sectoral infrastructure funds is on the higher side as their portfolio is concentrated with securities of infrastructure companies. There is no doubt that you make overwhelming returns when the infrastructure sector is doing well. But your losses can be magnified when the sector is not performing as expected.
• Market risk Market risk is the possibility of the value of your investments going down due to the market movements.
• Volatility risk Volatility risk is the possibility of the worth of your investment going down due to the sudden change in the price of the securities.

Things to Consider Before Investing in Thematic Consumption Funds

As an investor, you should consider the following before investing in a thematic consumption mutual fund:

• Risk profile If you are not willing to take any risk, then you may stay away from investing in thematic consumption funds as they carry higher levels of concentration risk. You should necessarily be ready to assume higher levels of risk if you are to invest in these funds.
• Investment horizon It is required that you have an investment horizon of at least five years to mitigate the associated risks to a greater extent.
• Diversification You must note that you don’t get the benefit of exposure to a diversified portfolio by investing in thematic consumption funds. This is because these funds invest in equities of companies that are driven by consumers.

Advantage of Investing in Thematic Consumption Funds

Investing in thematic consumption funds comes with the following advantages:

• You get exposure to a portfolio constituted by top-performing equities of consumer-facing companies across sectors.
• You get the potential to earn benchmark-beating returns when the consumer sector is doing well.
• These funds are an excellent investment option for long-term financial goals.