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Premium Why Sensex fell over points today. Experts predict t Infrastructure by its very nature will be a volatile sector and therefore even the returns on the infrastructure sector fund will be volatile. Therefore, the best way to take advantage of this volatility is to adopt a phased approach to investing. Ideally, do a systematic investment plan SIP on these infrastructure funds so that over a period of time the volatility works in your favour and your cost of holding is reduces substantially.
Take a holistic view on infrastructure. When you are making a financial plan you invest in equity and debt funds to manage your wealth creation needs and your regular income needs. When you consider your exposure to infrastructure, take the combined exposure to equity and debt as that reflects your total infrastructure related risk in the portfolio.
Keep an outer limit for your overall exposure to infrastructure to contain thematic risk. When it comes to infrastructure, there is a wide gamut of ways to take exposure to this sector. You can buy equity funds that are infrastructure focused. Alternatively, you can also buy tax saving bonds and tax rebate bonds that invest in the infrastructure space. These are quite attractive in post tax terms.
Lastly, there are new opportunities in the form of InvIT Infrastructure Investment Trusts which are a quasi debt and quasi equity investment in infrastructure. Infrastructure exposure through all these methods can be quite impressive. Take a comparative view after considering all options. The correlation matrix, which covers a year period, indicates relatively high correlations between infrastructure funds and U.
Meanwhile, the correlation to inflation was very low, demonstrating little value as an inflation hedge. Correlation to bonds was also low, not surprising given the higher equity association. Risk and return data are also equivocal.
Downside resilience has not been particularly in evidence. During the early coronavirus bear market, infrastructure funds did worse than equities. While they held up better during the fourth-quarter drawdown, during the bear market, they did no better than the stock market as a whole.
Note, too, that infrastructure appears to be a rare area in which active funds have significantly outperformed a passive benchmark.
Infrastructure funds do provide a relatively attractive yield given the current interest-rate environment. The month yield for the category, as of the end of February , was 1. One caveat to the above data is that they cover only a discrete period, and an unusual one at that, given an equity bull market, declining interest rates, tame inflation, and rising correlations between asset classes.
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