Infra funds: Suited for seasoned investors who can handle cyclicality

Limited allocation should be taken in the satellite portfolio with above five-year horizon

The government’s heavy spending on infrastructure and lower interest rates have failed to lift the performance of infrastructure funds. These funds lost 5.6 per cent in the year ended September 9, 2025, against a 1.8 per cent loss posted by flexi-cap funds.

 

“2024 was a challenging year for the infrastructure sector. Due to the general elections, political focus shifted towards welfare measures. Infrastructure activity remained flat. Full-year spending fell short of market expectations, which led to the low performance of infrastructure funds,” says Ravi Kumar TV, founder, Gaining Ground Investment.

Understanding infra funds

Infrastructure funds invest at least 80 per cent of their corpus in companies from sectors such as energy, construction, railways, power, telecom, materials, services, and capital goods.

 

“India’s infrastructure is supported by large-scale projects and government initiatives aimed at turning India into a global manufacturing centre. Major projects include industrial corridors, smart cities, highway expansions, electrification of rail networks, metro developments, ports, and a focus on sustainable and climate-resilient infrastructure,” says Sachin Trivedi, fund manager (equity), UTI Asset Management Company (AMC).

 

Twenty-five infrastructure funds manage Rs 51,285 crore. Some schemes are actively managed, while others track indices such as BSE India Infrastructure, Nifty Infrastructure, and Nifty500 Multicap Infrastructure 50:30:20.

Growth drivers

Strong government support, funding availability, and effective execution could help drive the earnings growth of infrastructure companies. “The downward interest rate cycle will help the sector, provided there is no lag in execution,” says S Sridharan, founder and chief executive officer, Wallet Wealth.

 

Rising order books and policy tailwinds are expected to provide support. The government’s commitment towards the creation of urban infrastructure, renewable energy and logistical infrastructure, along with the emergence of new growth avenues such as digital infrastructure, is also expected to provide a boost to this theme.

 

“Infrastructure will continue to act as the backbone for India to become a manufacturing giant. Hence, it is a multi-decadal story where targeted investments should see multifold growth and outperformance in markets,” says Bhalachandra Shinde, assistant fund manager, Motilal Oswal AMC.

Volatility, concentration risk

Infrastructure funds tend to see cyclicality in performance. “These funds can be volatile and may underperform the broader index for years. Also, debt-heavy companies may carry default risk,” says Sridharan.

 

These funds also carry concentration risk. “If the core holdings are concentrated, then it will turn out to be a narrow sectoral bet. For example, funds with a heavy construction tilt may be volatile. Those that invest across manufacturing utilities, renewables, power, logistics, materials, and ancillaries could be more stable,” says Kumar.

Long-term commitment required

Infrastructure funds require patience and a long horizon. “Since these are thematic funds, there will be inherent volatility and high beta. An ideal holding period would be between five and 10 years to smoothen out volatility and generate healthy returns compared to diversified funds,” says Shinde.

 

The Indian infrastructure sector offers long-term growth prospects but also exhibits cyclical patterns. “Investors with specialised knowledge or those guided by advisors should consider sector investments, preferably with a long-term outlook. Sector funds, including infrastructure funds, should represent no more than 15–20 per cent of the total investment portfolio at any given time,” says Trivedi.

 

These funds should be a satellite, and not a core allocation in the portfolio. Investors should prefer funds with a solid track record and sizeable assets. Passive schemes are an option for those who want to keep costs low and avoid fund manager risk.  (The writer is a Gurugram-based independent journalist) 

Infra funds: Sound long-term performance
Period	Catgeory average return (%)
YTD	-1
1-year	-5.6
3-year	22
5-year	29.9
10-year	15.6
Returns are of direct plans. Above one-year returns are annualised.
Source: PBCS.in