Best Infrastructure Mutual Funds: ICICI Pru Infrastructure Fund vs DSP India T.I.G.E.R Fund

One of the most important pillars in ensuring effective governance in a nation's economy is its infrastructure. Prime Minister Narendra Modi's government initiatives and private sector investment are driving a dramatic revolution in India's infrastructure sector.

Although the Lok Sabha 2024 election results did not turn out on the predicted lines, the BJP stopped at 240 seats - 32 short of the majority in the 543-seat Lower House of Parliament, and the NDA was unable to surpass the 300-seat mark. However, its coalition partners gained additional seats, bringing the BJP-led NDA's total to 292 seats. The National Democratic Alliance (NDA), led by the Bharatiya Janata Party (BJP), is presently poised to form the third consecutive Union administration following the final election results.

As Prime Minister Narendra Modi embarks on his third consecutive term (Modi 3.0), India's infrastructure industry is ready for a breakthrough that will build on the tremendous advancements made in the last decade. Although the government's persistent emphasis on infrastructure development as an economic force multiplier has led to observable improvements, the pursuit of world-class infrastructure is still going strong.

[Read:5 Best Mutual Fund Types to Benefit During Modi's Third Term]

Highlights from Modi 2.0 government for the expansion of India's Infrastructure Sector...

During its previous tenure, the Modi government made infrastructure development a top priority by implementing programmes like Sagarmala and Bharatmala Pariyojana, which aim to improve port and road connectivity, respectively. While Sagarmala seeks to upgrade ports and boost marine trade, Bharatmala is more concerned with enhancing highways and cutting expenses associated with logistics.

The speed at which roads are being built has accelerated recently, from about 12 km/day in 2014 to about 37 km/day. This improved the effectiveness of logistics, greatly cutting costs and transit times. Mobility was boosted by the railway network's addition of nearly 31,000 km of additional tracks, a dedicated goods corridor, extensive station renovations and contemporary train sets like the Vande Bharat Express.

Under UDAN, some 75 additional airports were put into service, bringing previously unconnected areas together and fostering economic growth. This multifaceted drive to build infrastructure has greatly boosted economic expansion, job creation, and the standard of living for the populace.

[Read: Top 5 Mutual Funds Paving the Way to Wealth with Indian Road & Highway Stocks]

To meet India's aim of reaching a USD 5 trillion economy by 2025, infrastructure development is the need of the hour. However, critical challenges like project delays, cost overruns, land acquisition hurdles, and lack of sustainable practices persisted, necessitating transformative solutions in the next five years.

Having said that, continued investment in infrastructure development is expected from the Modi 3.0 government, creating economic opportunities and benefiting companies in construction and related industries.

This positive outlook bodes well for mutual funds focusing on the infrastructure sector, offering attractive long-term investment opportunities. Infrastructure mutual funds offer a route to participate in this sector's progress, but with various options available, choosing the right fund becomes crucial.

Here's a comprehensive evaluation of the two best Infrastructure mutual funds - ICICI Prudential Infrastructure Fund vs DSP India T.I.G.E.R Fund, to aid you in making an informed investment decision.

# - ICICI Prudential Infrastructure Fund

ICICI Prudential Infrastructure Fund is an open-ended equity scheme that belongs to ICICI Prudential Mutual Fund. It is a well-established sectoral fund launched on August 31, 2005, and currently has an AUM of Rs 5,034.14 crore (as of May 31, 2024).

Managed by experienced professionals, the fund focuses on investing in companies across the infrastructure value chain. This includes core infrastructure sectors like power, transportation, and telecom, along with allied industries like cement and construction. The scheme is a popular choice among investors seeking to benefit from the growth of the infrastructure sector.

The fund prioritizes companies with strong financials, healthy order books, and a track record of successful project execution. ICICI Pru Infrastructure Fund is benchmarked against NIFTY Infrastructure - TRI as a primary index.

# - DSP India T.I.G.E.R Fund

DSP India T.I.G.E.R Fund is an open-ended equity scheme and belongs to DSP Mutual Fund. Launched on June 11, 2004, it is a popular sector-oriented scheme that emphasizes on infrastructure segment and currently holds an AUM of Rs 4,385.95 crore.

DSP India T.I.G.E.R Fund (The Infrastructure Growth and Economic Reforms Fund) presents a more thematic approach to infrastructure investing. The fund focuses on companies positioned to benefit from India's thrust on infrastructure development, along with those operating in the transportation, industrial, and energy sectors. This broader sectoral exposure offers diversification while maintaining a focus on infrastructure-linked growth.

DSP India T.I.G.E.R Fund is benchmarked against S&P BSE 100 - TRI as a primary index.

Investment Style and Philosophy:

- ICICI Pru Infrastructure Fund: follows a growth-oriented approach, aiming to capitalize on the long-term potential of the infrastructure sector. It adopts a diversified investment strategy, spreading investments across various sub-sectors to mitigate risk.

The scheme is Multicap in nature and will invest in stocks across market capitalisation. The scheme seeks to optimize the risk-adjusted return by a mix of top-down macro and bottom-up micro research to pick up infrastructure stocks providing long-term potential.

- DSP India T.I.G.E.R Fund: employs a thematic strategy, identifying companies across sectors that align with the government's infrastructure development goals. This broader approach can potentially capture growth beyond traditional infrastructure sectors.

The fund managers will adopt a combination of the top-down approach and bottom-up stock selection approach. From a top-down perspective, the focus would be on an analysis of key policy changes, infrastructure spending, economic trends, and a sector-wise impact assessment.

From a bottom-up perspective, the focus would be on an analysis of corporate profitability and the impact of policy changes and infrastructure spending at a micro-level. The focus would be on sectors and corporates which could witness significant value creation and unlocking of value on the back of policy changes and infrastructure spending

Both funds aim for capital appreciation by investing in infrastructure-related companies. However, DSP India T.I.G.E.R Fund's broader sectoral focus might appeal to investors seeking additional diversification.

• Performance Comparison: Rolling Returns

As we can see from the above table, both ICICI Pru Infrastructure Fund and DSP India T.I.G.E.R Fund have outperformed their benchmarks, Nifty Infrastructure TRI & S&P BSE 100 TRI, across all timeframes. However, it's crucial to remember past performance is not a guarantee of future results.

Here, ICICI Pru Infrastructure takes the lead. While both funds have very similar performance in the 5 and 10-year ranges, ICICI Prudential boasts a higher CAGR across all timeframes except for the absolute returns. This indicates that ICICI Prudential's returns have been more consistent over the long term.

While both funds outperform the benchmark indices, across all timeframes, however, it's important to note that they underperform the Infrastructure category average except for the 10-year horizon. Thus, one may consider other factors like portfolio holdings, risk profile, and investment philosophy before making a decision.

• Portfolio Composition: Asset Allocation of Schemes

  Both ICICI Pru Infrastructure Fund and DSP India T.I.G.E.R Fund are popular choices for investments in infrastructure sector-oriented funds, but their asset allocation strategies differ slightly.

Both infrastructure schemes have their assets invested across market capitalisation.

ICICI Pru Infrastructure Fund has a significantly higher allocation to large-cap stocks (47.15%) compared to DSP T.I.G.E.R Fund (33.89%). Large-cap companies are typically considered less volatile and offer potentially steadier returns.

The difference in mid-cap allocation is relatively small (ICICI Pru - 18.33%, DSP T.I.G.E.R - 17.27%). Mid-cap stocks can offer a balance between growth potential and risk. The most significant difference lies in small-cap allocation. DSP T.I.G.E.R Fund allocates a much larger portion of its portfolio (41.77%) to small-cap stocks compared to ICICI Pru (27.14%). Small-cap stocks have the potential for higher growth but also carry greater risk.

ICICI Prudential's larger allocation to large-cap stocks suggests a potentially more conservative approach targeting stability and income. Whereas, DSP T.I.G.E. R's higher small-cap allocation indicates a growth-oriented strategy that might generate potentially higher returns but also comes with greater volatility.

The asset allocation differences highlight the contrasting risk-return profiles of these two infrastructure funds. Investors seeking a potentially more balanced and stable approach might favour ICICI Pru Infrastructure Fund, while those comfortable with a slightly more aggressive tilt with a higher allocation to small caps might find DSP India T.I.G.E.R Fund more appealing.

• Market Volatility: Risk profile of Schemes

  Investing in sectoral funds may offer benefits from the growth potential of the underlying sector like - Infrastructure, however, understanding the scheme's risk-reward profiles is crucial before investing.

An investment with high volatility is considered riskier than an investment with low volatility; the higher the Standard Deviation, the higher the risk. While both funds exhibit volatility, DSP T.I.G.E.R has a slightly higher Standard Deviation (15.92%) compared to ICICI Pru (14.63%). This suggests that DSP T.I.G.E. R's price movements tend to be slightly more erratic.

Both funds have relatively low Sharpe ratios (0.52 for DSP T.I.G.E.R and 0.58 for ICICI Pru). A higher Sharpe ratio indicates better risk-adjusted returns. While ICICI Pru Infrastructure Fund edges out DSP India T.I.G.E.R Fund here, the overall values suggest both funds offer modest risk-adjusted returns compared to their volatility.

Following a similar trend, ICICI Pru Infrastructure Fund boasts a higher Sortino Ratio (1.33) compared to DSP India T.I.G.E.R Fund (1.18). The Sortino ratio penalizes downside volatility, focusing on rewards earned relative to only negative fluctuations. This reinforces the notion that ICICI Pru Infrastructure Fund could have delivered more consistent returns for the level of risk taken.

Remember, this comparison is just to give you an idea about the risk profile of the two best infrastructure mutual funds. Consider your risk tolerance and investment goals to determine which fund aligns better with your investment strategy.

• Top Holdings of the Schemes:

  While both ICICI Pru Infrastructure Fund and DSP India T.I.G.E.R Fund invest in the infrastructure sector, their specific holdings and sector allocation reveal some key differences:

ICICI Pru Infrastructure Fund leans more towards traditional infrastructure sectors like power (NTPC Ltd.), construction (Larsen & Toubro, NCC Ltd.), and banking (HDFC Bank, ICICI Bank) with significant allocations. It also holds companies in related sectors like cement (Grasim Industries, Nuvoco Vistas) and aviation (Interglobe Aviation). This suggests a broader exposure to industries that indirectly support infrastructure development.

DSP India T.I.G.E.R Fund seems to have a slightly more nuanced approach. While it includes core infrastructure companies like Larsen & Toubro and Kalpataru Projects, it also has significant holdings in industrial companies (Kirloskar Oil Engines) and engineering giants (Siemens).

It also ventures into sectors with tangential infrastructure links, like electrical equipment (Polycab India) and telecommunication (Bharti Airtel). This broader diversification could potentially capture growth in sectors that benefit from overall infrastructure growth.

Both funds share some common holdings like NTPC, Larsen & Toubro, and Kalpataru Projects, suggesting an overlap in their core infrastructure focus. However, their weightage differs. ICICI Pru has a larger allocation towards NTPC (power) and HDFC Bank, while DSP T.I.G.E.R prioritizes Kirloskar Oil Engines (industrial) and Siemens (engineering).

• Expense Ratio of the Schemes

  When comparing sectoral funds, the Expense Ratio, which represents the annual fee charged, plays a crucial role in determining your returns. Here's a quick breakdown of ICICI Pru Infrastructure Fund vs DSP India T.I.G.E.R Fund:

ICICI Pru Infrastructure Fund has a marginally lower Expense Ratio compared to DSP India T.I.G.E.R Fund in both plans. There is only a slight difference between the expense ratios of both schemes. While a 0.03% difference might seem insignificant, it can add up over long investment horizons.

Even a small percentage point difference can accumulate over time and impact your returns. Remember, a lower expense ratio translates to potentially higher returns over time, but a lower expense ratio should not be the only factor to be considered while investing in sectoral funds.

• Suitability of Investors to the Schemes:

  ICICI Pru Infrastructure Fund's focus on consistent growth over extended periods is ideal for investors with a longer time horizon (ideally 5 years or more) and a moderate risk tolerance. Its higher CAGR indicates steadier returns that can compound over time. Investors seeking pure infrastructure exposure might favour ICICI Pru's focus on established players in core sectors.

  DSP India T.I.G.E.R Fund's strategy might appeal to investors with a higher risk tolerance. Its portfolio positioning might capture short-term market opportunities that could lead to significant gains but also carries the risk of larger losses. Investors looking for a broader play on infrastructure development, potentially including related industries, might find DSP T.I.G.E.R. more suitable.

  Both funds invest in the infrastructure sector, which is inherently cyclical. This means their returns can fluctuate based on economic conditions. Investors comfortable with this volatility are suitable for either fund. However, do note these funds focus on carrying a concentrated portfolio related to a specific sector. Ensure they complement your existing portfolio allocation to spread risk.

  [Read: Unlock the Potential of Real Estate With These Top 5 Infrastructure Mutual Funds]

  The Future of India's Infrastructure Sector

  The infrastructure capital expenditure outlay has been increased by 11.1% under the Interim Budget 2024-25 to Rs. 11.11 lakh crore (USD 133.86 billion), or 3.4% of GDP. Infrastructure development in India primarily utilizes the 'Public-Private Partnership' (PPP) approach, with infrastructure developed under the 'Build-Operate-Transfer' (BOT) model. More than sixteen ministries have received financial support and advice from the government to build infrastructure under this concept.

  Digital and social infrastructure are also being developed in India, in addition to physical infrastructure. To meet India's infrastructure demands, the government has implemented several programmes and initiatives, including the PM GatiShakti Master Plan and the 'National Infrastructure Pipeline' (NIP).

  In 2024, positive advancements are seen in the Indian infrastructure industry, thanks to both strong macroeconomic tailwinds and government measures. Capital expenditures (capex) have increased by 37% in the current fiscal year, supporting continuous infrastructure development and aligning with India's 2027 economic growth targets to reach a USD 5 trillion economy.

  These reforms, along with a multitude of ongoing projects, create a positive outlook for the future of India's infrastructure sector. In the coming years, the industry is predicted to grow significantly, offering promising investment opportunities.

To summarise...

India's infrastructure sector is poised for significant growth. With a supportive government, innovative approaches, and private sector participation, the road ahead is promising. Both ICICI Pru Infrastructure Fund and DSP India T.I.G.E.R Fund offer exposure to India's growing infrastructure sector but cater to slightly different investment styles.

However, careful research and consideration of your risk tolerance are crucial before investing in any sector-oriented fund. Ultimately, the best choice depends on your investment horizon and goals. Consulting a SEBI-registered financial advisor can be invaluable to ensure optimal alignment with your specific investment objectives.

Remember, a well-diversified portfolio across market caps/sectors and asset classes may help manage overall risk while potentially benefiting from its growth potential.

Disclaimer: PersonalFN does not receive any monetary compensation from the fund house or scheme names stated in the article.

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MITALI DHOKE is a Research Analyst at PersonalFN. She is an MBA (Finance) and a post-graduate in commerce (M. Com). She focuses primarily on covering articles around mutual funds including NFOs, financial planning and fixed-income products. Mitali holds an overall experience of 4 years in the financial services industry.
She also actively contributes towards content creation for PersonalFN’s social media platforms in the endeavour to educate investors and enhance their financial knowledge.
 

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.