Thursday, March 15, 2012

STUCK WITH INFRASTRUCTURE FUNDS???



 

Many investors riding the Infrastructure boom invested in Infrastructure funds only to see their investment languishing….What should they do now????

Sri Anandji wrote : "Srikanthji Namaskar, I had invested in two funds namely SBI Infrastructure and Sundaram Energy Fund and have still not yet recovered even my prinicipal amount.
Please guide me what I should do with these two funds"

Srikanth Shankar Matruai i  advises :
"Anandji, I can clearly understand your disappointment.

If there is one sector that has been a major major disappointment, then it is undoubtedly Infrastructure. And as such, Infrastructure Funds have been a huge huge disappointment for the past 3 years.

WHY INFRA UNDERPERFORMED :
Infrastructure funds have been the biggest causality in the stock market downturn.
The Govt's lethargic moves have only added fuel to the fire and the Infrastructure is in a paralysis state.
High interest rates, environmental issues, delay in project execution, Govt inaction have taken a huge tool on Infrastructure companies and on the Funds which have taken an exposure in them.
Everything that could go wrong with Infrastructure has happened.
Consistently High Interest rates, depressed stock markets, political problems, scams, land acquisition issues have taken a huge toll on Infrastructure sector.
WHAT ABOUT THE FUTURE???
The general consensus is that the government will start allocating new core sector development projects this year.
The Infra space has a lot of promise and lots of potential. Every political party's manifesto speaks about their concern for infrastructure development.
Only thing needed is a consensus and sorting out the concerns.

Many investors who are stuck with Infrastructure funds are in a dilemma whether to book losses or average out.

My personal feeling is that everything which could go wrong in the infrastructure space has gone wrong.
There is a saying "it is darkest just before it is dawn".......and I stick with the same kind of feeling towards the Infrastructure sector and in turn infra funds.
it is an interesting space, it is an exciting space, it is a volatile space. So, you will have to manage your risk within the portfolio quite well. If you have 2%-3% investment in an infra fund you can take that risk.
And, once you have decided to take the risk and invest in Infrastructure funds, then, please go for Dividend payout option.
But recently, the sector has witnessed some momentum. There are a number of reasons behind this turnaround in performance. The infrastructure companies are receiving good news from all around; the drop in interest rates is expected to benefit these companies as well. 


SUGGESTION :
Investment in a sector fund is BAD....even a Sector as broad as Infrastructure.

These sector funds are meant for investors who are interested in the core sector  and hence suitable for those willing to take a higher amount of risk as well as have a 3 year holding time horizon.
Sector funds are risky, require active monitoring and even possibly market timing.
I would suggest you to stay away from infrastructure mutual funds. I strongly believe that investors are better off when they diversify their portfolios.
Invest in diversified equity funds, which will anyway have exposure to infrastructure companies if they are doing well.

Best of luck,
Srikanth Shankar Matrubai

Also visit
http://equityadvise.blogspot.com

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