Investments in Infrastructure funds | Value Research Infrastructure sector remains full of worries and investors should stay away from it...
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Investments in Infrastructure funds

Infrastructure sector remains full of worries and investors should stay away from it...

I invested in UTI Infrastructure fund through SIP in 2008. The total investment is Rs 32,500, but the current value is Rs 28,642, which is an approximate loss of 12 per cent after four years. I need to evaluate if I should stay invested in the fund until NAV improves and I am able to recover my principal amount. Or should I withdraw the amount at loss and reinvest it in better performing funds.
-Karthikeyan

In the past decade, the infrastructure sector was instrumental in riding the bull run up to 2007. Several mutual funds rode on the theme. However, performance of infrastructure funds started dropping after the 2008 crisis. A lot has changed since then with the markets consolidating in 2010 and falling again in 2011.

UTI infrastructure is a two-star rated fund. The fund has performed poorly in the past few years barring 2012 when it delivered 32 per cent beating its category by a margin of around seven per cent. But it significantly underperformed its peers between 2009 and 2011. Over a period of five years, it is the fourth worst performing infra fund among its 21 peers. The fund lost 4.39 per cent in this period while the average fall among its peers was 2.52 per cent.

A lot of the dismal performance is to do with the sector itself, which has not found anything encouraging to attract investments. The fortunes of this sector depend a lot on government spending, which has not taken off. Moreover, in a changed economic environment of gloom and relatively higher interest rates, there is little to cheer for the funds investing in the theme.

It would be wise move out of the fund to cut losses. We have been vocal about exiting the sector for long, for we believe sector and thematic funds work only if the theme is compelling, or to get the diversity in the portfolio. By holding on to a non-performing fund, one loses the opportunity that other funds present.



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