DSP MF cautions investors against lumpsum investment in infra fund

Says the valuations can lead to volatility, despite robust long-term outlook

DSP Mutual Fund (MF) has cautioned investors against making lumpsum investments in its infrastructure fund TIGER as the valuations have run-up across the market segments where it deploys the money.

The fund house said that despite the strong return potential in the long-run, the theme is susceptible to intermittent volatility, given the lack of valuation comfort.

“As fund managers, we can ensure that we invest in quality stocks but we cannot control valuations. Investors do have a solution which is SIP,” said Kalpen Parekh, Managing Director and Chief Executive Officer (CEO), DSP MF, adding that investors often invest in themes which have already delivered high returns and this leads to them having a poor future experience.

The fund house has put up a banner on its online investment portal for investors looking to invest in its TIGER fund. It says that “it is a very high-risk sectoral theme and has witnessed periods of steep rises and falls in the past. We advise you to be prepared to face short-term fluctuations and train yourself to stay resilient over the long term.”

The infrastructure and manufacturing themes have been the top performers in the last one-year period as stocks across railways, defence and industrials have run up sharply during the period. Some fund houses have launched products in these categories in the recent months.

The BSE India Infrastructure TRI index is up 116 per cent in the one-year period. Funds in the manufacturing theme have also delivered around 70 per cent return. The DSP TIGER fund has given 80 per cent return. Only HDFC Defence Fund and few PSU schemes have delivered higher returns than infrastructure funds in the one-year period, shows data from Value Research.

Funds and themes at the top of the returns chart generally see higher inflows as a section of investors go by past returns when selecting funds. Smallcap funds were in the news in the past few months as they garnered record inflows on the back of strong past performance, despite 'froth' in valuations.

On the longer-term outlook, DSP MF said that the manufacturing sector is expected to grow multi-fold from $459 billion market size in financial year 2024 to $1.66 trillion by FY 2034.

“This growth surpasses the average increase of $175 billion experienced over the last decade. Additionally, the manufacturing sector’s contribution to the GDP is anticipated to rise from 14 per cent in FY 2024 to 21 per cent by FY 2034, bolstered by lower logistics costs and improved infrastructure,” DSP MF said in a release.