Motilal Oswal MF's infra NFO: Should you bet on the theme after a year of tepid returns?

The outlook for the infrastructure sector remains positive.

Motilal Oswal Mutual Fund (MOMF) has launched an infrastructure fund, offering investors an longer term opportunity to bet on companies engaged in or expected to benefit from India’s expanding infrastructure development.

The new fund offer (NFO) for Motilal Oswal Infrastructure Fund opened on April 23 and will close on May 7, 2025, and is benchmarked on the Nifty Infrastructure Total Return Index.

Prateek Agrawal, Managing Director and Chief Executive Officer, Motilal Oswal Asset Management Company, said, "India's infrastructure growth is gaining momentum. As capital expenditure picks up across sectors like roads, railways, energy, urban, social and digital infrastructure, we believe this fund offers a compelling opportunity to participate in India’s infrastructure development journey”.

What’s on Offer?

The Motilal Oswal Infrastructure Fund will focus on investing in sectors such as construction, metals, energy, cement, and capital goods.

A minimum of 80 percent of the fund’s corpus will be invested in infrastructure-related stocks, and the rest may go into debt instruments, REITs (Real Estate Investment Trusts) and INVITs (Infrastructure Investment Trusts).

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The Fund will be managed by Ajay Khandelwal (Equity component), Atul Mehra (Equity component), Bhalchandra Shinde (Equity Component), Rakesh Shetty (Debt Component) and Sunil Sawant (Overseas Securities).

Why Infrastructure?

India's infrastructure landscape is undergoing significant changes, and MOMF said the fund is influenced by government reforms, steady GDP growth of over 7 percent, and increased capital expenditure across key sectors including Roads (~17 times), Railways (~6.5 times), Housing (~7 times), and Defence (~3 times).

“Over recent years, this sector has delivered strong returns, driven by rising corporate earnings and significant government capital expenditure on infrastructure projects. However, in the past six months, it has posted negative returns, largely due to a broader market correction affecting most sectors,” said Chirag Muni, Executive Director, Anand Rathi Wealth.

Infrastructure as a theme has well over the long term in India. Data available with ACE MF, a mutual fund research platform, shows that Nifty Infrastructure TRI (total return index) has been among the top performing sectoral/thematic segments with a compounded annualised growth rate (CAGR) of 28.47 percent over the past five years.

Another plus is that Motilal Oswal Infrastructure Fund isn’t limited to just one type of investment.

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“While a minimum of 80 percent is invested in infrastructure-related stocks, the rest can go into debt instruments, REITs, InvITs, or global ETFs that align with the theme. This gives the fund some flexibility and helps manage risk better,” said Ratish Gupta, Director at Wealth Wisdom India.

Case for Thematic Funds?

While the outlook for the infrastructure sector remains positive, supported by continued government spending and increasing private capital expenditure, investing in a single sector carries higher risk.

Data shows that over the short term (one year), the infrastructure index has delivered a merge 4 percent returns.

“This is not a short-term play. Infrastructure projects take years to complete, and the market will have its ups and downs in the meantime. But if you're someone with a long-term outlook — five years or more — this fund could be a great way to participate in India's growth journey in a focused way,” said Gupta.

What Should Investors Do?

According to Gupta, Motilal Oswal Infrastructure Fund offers a chance to invest in the engine room of India's future. “If you’re looking to align your portfolio with the country’s development, this fund is worth a serious look,” he said.

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However, when it comes to NFOs, investing is generally not advisable. These funds are new and haven’t been tested across different market cycles, making it difficult to assess their performance resilience. Furthermore, sectoral or thematic funds tend to follow cyclical trends and require well-timed entry and exit points — something not suitable for most regular investors.

“Instead, it is recommended to diversify across active equity categories such as market cap-based funds or strategy-based funds (e.g., value or contra strategies). These options offer broader sector and market cap exposure, helping investors navigate various market conditions and potentially generate superior returns over time,” said Muni.

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