Infrastructure Equity Funds

[ntrader]

Does anyone have any idea/thoughts on this fund. The IPO is slated to end tomorrow morning I believe.

-ntrader

[TATrader]

Broadly, TIF plans to invest 70 percent of its net assets in companies in the infrastructure sector. The sector comprises:

Energy
Power
Power Equipment
Oil and Gas and allied industries
Coal
Mining
Aluminium and other metal industries
Steel and Steel Utilities
Engineering
Construction
Cement
Transportation
Ports
Telecommunications
Housing
Banking and Financial Services and Health Related Industries
The remaining 30 percent will be invested in debt (fixed income investments like bonds, fixed deposits, etc) or money market instruments (fixed income investments that mature within a year and are not usually available to individuals).

Pros first

~ Being an open-ended fund, should you want to sell your units, it will not be a problem. You will be able to sell them back to the fund whenever you want to and, within a few days, the money will be given to you.

~ Should you want to buy more units, that's not a problem either. An open-ended fund will issue as many shares as the investors demand.

~ India should be spending huge amounts on infrastructure. According to a report by the Centre for Monitoring Indian Economy, India needs Rs 7,00,000 crore to be invested in infrastructure. Even if a fraction of this estimate materialises, TIF will gain tremendously.

~ TIF has the potential of creating long-term value from expected investments in infrastructure-oriented sectors. One can conservatively expect a return of 40-50 percent over a period of six-seven years.

The cons now

Sector funds are more risky than others

If the companies within that sector do well, the mutual fund's NAV rises. If not, it drops.

Normally, in a diversified equity fund, investments are made in companies from different sectors. So, if one sector is not doing well, the investments in the other sector will balance it.

For example, if a mutual fund manager invests in the banking, infotech, infrastructure and automobile sectors and the automobile sector fails, then the performance of the other three sectors will help keep the NAV up.

TIF, however, will only invest in companies in the infrastructure sector.

There aren't many great companies around

TIF's investments will be limited to infrastructure related companies. And there is a dearth of quality infrastructure companies.

The Securities and Exchange Board of India, which is the market regulator, prohibits any mutual fund from investing more than 25 percent of its net assets in listed (this means the company is registered on the stock exchange for buying and selling shares) securities with the same group of companies that the fund belongs to.

Now if one took the example of the Tata group, TIF will have to limit its investments in infrastruture related companies like Tata Steel, Telco, Tata Motors, Tata Power, Tata BP Solar India and VSNL.

Don't underestimate the political angle

Indian companies, whether public or private, do not show urgency to execute infrastructure projects within the given timeframe. Take for example the Dabhol Power Corporation and Mumbai-Pune Expressway.

This results in eroding the value of the investment in the project.

Also, the opening up of the infrastructure sector to private/ foreign ownership/ investment depends on the whims and fancies of the Government of India and they flop more than they flip.

The timing

TIF's plan to invest 30 percent in debt/ money market instruments comes at a time when interest rates are moving up. Generally, the value of debt instruments (bonds, gilts, etc) decreases with the rise in interest rates and vice-versa.

TIF is entering the market when it is at historic high -- the price of the shares of quality infrastructure companies are at a 52-week highs.

[ntrader]

Thanks very much, TATtrader for the info.

[mmsundar]

Hi,

I believe that Indian infrastructure industry will grow at a high rate and looking to invest in a couple of infrastructure funds. I find that "Tata Infrastructure" fund is doing good. Any other recommendations for investing in the infrastructure sector?

Thank you,
Mohan

[sarathc]

I think 'theme' specific funds do tend to carry above-average risk for higher return expectations. Given we are seeing the market euphoria at never-before-existing levels and due to the very steep valuations of majority of the stocks today, it might be worthwhile considering to steer clear off sector funds and choose plain vanilla diversified equity funds (that too, the ones having properly handled both bull and bear markets, e.g., Franklin India Blue Chip; HDFC Equity) at this point of time.

One more fund that can catch our fancy is: DSPML Opportunities. It places itself as a dynamic-sector fund, has a with a decent long term track record to its name.

[mmsundar]

Thank you sarathc and I appreciate your thoughts.

I already have a decent protfolio of diversified funds like HDFC Equity, SBI Contra, SBI Midcap, HSBC Midcap, Franklin Flexicap and Relicance Growth. I know it is high risk to invest in a sector fund, but I can take that risk.

I have narrowed down "Tata Infrastructure fund" but will also closely watch the DSPML fund as well.

Thank you,
Mohan

[sskartiksharma]

I am thinking of investing in the 2 funds quoted.
I would like to know, whether it is the correct time to invest in these Funds?

[surfingminds]

As the Infrastructure sector in indian market is on bull run. Most of the infra funds are in top 10. ICICI & TATA no different. I believe long run infra will do good and there is no reason not to invest into it.
But is this a right time Its all depends cuz there may be correction in infra sometimes which can be good entry point for you.

I have ICICI pru NAV is more than double in almost 2 years
you may consider
DSP Tiger
Reliance Power
Can Bank infra to compare and buy accordingly.

[sskartiksharma]

Thank You.
I have UTI Infrastructure and SBI Infrastructure and they are doin good.
I am trying to bank more on Infra & Energy funds...
I guess I'll go for these 2 funds.
UTI has Launched Energy opportunities fund as it's NFO.
Should gather some info on that?
Any News on that?

[surfingminds]

NFO are just same thing packed in new bottle. compare this NFO with the existing funds in similar category and only buy if there is some solid reason not to buy the proved stuff and rely more on new launch..

I have invested in this sector and would do intensive research in Engergy sector. I am working in Gulf and this might give expossure to some of key data.

Do share your information analysis here.