5 Best Infrastructure Mutual Funds Fund to Invest in 2025

The sector has been expanding steadily, with an estimated annual growth rate of around 8-10%. Key areas like roads, railways, urban infrastructure, and energy have received substantial investments, driving the sector's progress.

The NIP, with its planned investment of around USD 1.4 trillion over the next five years (2020-2025), highlights the government's commitment to infrastructure development. It includes projects for roads, airports, ports, urban transportation, and affordable housing, alongside a focus on renewable energy sources, smart cities, and digital infrastructure.

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

• According to a Cushman & Wakefield report, India's real estate market saw a surge in investments during the second quarter of 2024, attracting USD 2.77 billion.​

• According to CRISIL's Infrastructure yearbook 2023, India will spend nearly Rs 143 lakh crore (USD 1,727.05 billion) on infrastructure in seven fiscals through 2030, more than twice the nearly Rs 67 lakh crore (USD 912.81 billion) spent in the previous seven years.

• As per a report by Morgan Stanley, India's infrastructure investment is to steadily increase from 5.3% of GDP in FY24 to 6.5% of GDP by FY29.

These efforts have been key drivers of growth in the sector, creating opportunities for companies and attracting both domestic and foreign investments.

The current market scenario for infrastructure stocks is promising, bolstered by consistent budget allocations. The 2024 budget, for example, allocated over USD 24 billion towards infrastructure projects, a 10% increase from the previous year. This reflects the government's unwavering commitment to the sector, signalling strong demand for infrastructure services and attracting investments from diverse sources, thus boosting market sentiment.

The Nifty Infrastructure Index, which includes companies from sectors such as construction, engineering, power, and transportation, has shown a steady upward trajectory.

The index has shown an overall rising trend from December 2023 to October 2024, indicating a positive performance of the infrastructure sector. There are periods of volatility within the trend, with noticeable peaks and troughs. Furthermore, the volatile nature of the index also calls for careful risk management. Investors should be prepared for periods of market consolidation and volatility.

Investing in infrastructure mutual funds can help investors capitalise on the growth potential of the Indian infrastructure sector. These funds invest in a diversified portfolio of companies across different infrastructure sectors, which helps mitigate the risks associated with any single sector or company.

For instance, even if one sector, like power, faces challenges such as regulatory changes or commodity price fluctuations, the impact may be less pronounced across the fund's overall portfolio due to exposure to other sectors like construction or transportation.

The increasing demand for infrastructure development aligns with the broader economic goals of creating a self-reliant and sustainable India, which bodes well for infrastructure mutual funds in 2025.

[Read: India's Manufacturing Momentum: ICICI Pru Manufacturing Fund vs. Kotak Manufacture in India Fund]

Why One May Consider Infrastructure Mutual Funds for 2025?

Looking ahead to 2025, the future outlook for the Indian infrastructure sector remains optimistic. The government's proactive policies, coupled with the rise in public-private partnerships (PPPs), are expected to drive further investments. The focus on sustainable development, smart cities, and green infrastructure is likely to remain strong, offering opportunities for companies involved in sectors like renewable energy, smart grids, and sustainable urban development.

Moreover, the push towards reducing carbon footprints and adopting clean energy sources is expected to play a pivotal role in shaping the future of infrastructure investments in India. Statistically, the infrastructure sector is projected to contribute approximately 13-15% to India's GDP by 2025, up from around 9-10% in recent years.

[Read: 5 Railway Mutual Funds to Ride the Growth of India's Rail Network]

This growth is driven by the government's ambitious plans for economic and social development, which include improving connectivity, enhancing urban infrastructure, and creating jobs through infrastructure projects. As the government continues to boost investments in infrastructure, it is creating a conducive environment for long-term growth in this sector, making it a compelling investment segment for investors looking for capital appreciation and stable returns in 2025.

Here's a curated list of top-performing infrastructure mutual funds to help you capitalise on the infrastructure growth story in the upcoming years:

#1 ICICI Prudential Infrastructure Fund

Launched in August 2005, the scheme invests in equity and equity-related instruments of the companies belonging to the infrastructure theme. ICICI Prudential Infrastructure Fund aims to provide investors with exposure to infrastructure sectors such as power, construction, and logistics.

The fund seeks to invest in companies with strong business fundamentals and good growth prospects. The fund holds 51.86% allocation to large-cap stocks, 13.90% in mid-cap stocks and 27.28% in small-cap stocks as of November 2024.

The ICICI Prudential Infrastructure Fund boasts a well-diversified portfolio with a strong focus on leading companies in the infrastructure and allied sectors. Its top holdings include Larsen & Toubro Ltd. (9.08%), a leader in construction and engineering, along with NTPC Ltd. (4.01%), a major player in the energy sector. This strategic allocation across high-potential companies ensures robust performance and positions the fund to capitalise on India's infrastructure growth story.

The ICICI Prudential Infrastructure Fund has established itself as one of the leading infrastructure-focused mutual funds in India, delivering consistent performance and strong returns over the years.

The fund's ability to identify high-potential stocks in emerging infrastructure segments, such as renewable energy and urban development, has further bolstered its performance. As you can see from the table above, historically, the fund has generated competitive returns of around 29.92% CAGR over the 5 years period, outperforming its benchmark indices.

#2 Quant Infrastructure Fund

Quant Infrastructure Fund is renowned for its focused investment in companies within the infrastructure sector, spanning industries such as construction, energy, transportation, and urban development. Launched in August 2007, the scheme currently has an AUM of Rs 3,585.30 crore.

The scheme invests across market cap, and as of November 2024, it holds 59.15% allocation in large caps, 4.65% in mid-caps and 25.30% in small caps. Do note it has a higher allocation to small-cap stocks, which are highly risky and sensitive to market fluctuations.

Quant Infrastructure Fund's portfolio reflects a well-diversified approach, with Larsen & Toubro Ltd. (9.64%), ITC Ltd. (9.60%), and Reliance Industries Ltd. (9.44%) form the top holdings, showcasing the fund's inclination towards industry giants with robust growth potential. The fund ensures exposure to emerging energy leaders, positioning it well to capitalise on India's infrastructure growth.

Quant Infrastructure Fund has consistently outperformed its benchmark over various time horizons. For instance, its 3-year return has been impressive, delivering approximately 37.02%, while its 5-7 years CAGR stands at a commendable 37.52% and 27.18%, reflecting the fund's ability to generate long-term wealth for its investors.

This stellar performance is attributed to its active portfolio management and dynamic allocation towards emerging sectors like renewable energy, digital infrastructure, and industrial automation, which are poised for exponential growth.

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

DSP India T.I.G.E.R Fund focuses on investing in companies that are directly or indirectly linked to infrastructure development and economic reforms in India. The fund holds a 31.05% allocation to large-cap stocks, 13.35% in mid-cap stocks and 46.81% in small-cap stocks as of November 2024. Launched in June 2004, the scheme holds an AUM of Rs 5,515.28 crores.

DSP India T.I.G.E.R Fund's top holdings include NTPC Ltd. (5.33%), Siemens Ltd. (5.07%), and Larsen & Toubro Ltd. (3.99%), reflecting its emphasis on power, engineering, and construction sectors. The fund also includes emerging players like Avalon Technologies Ltd. (2.30%) and Inox India Ltd. (1.94%), highlighting a balanced strategy to capture growth across established and innovative infrastructure segments.

The Fund's diversified portfolio has enabled it to weather market volatility while capturing opportunities during periods of economic growth and reform implementation.

The fund has delivered competitive returns, outperforming several peers in the infrastructure category. For instance, its 3 to 5-year CAGR has been approximately 36-28%, while its 7 to 10-year CAGR has hovered around 18-20%, reflecting its ability to navigate market cycles and capitalise on economic trends. The fund has benefited from its focus on mid-cap and large-cap companies with strong fundamentals and growth potential, ensuring a balanced risk-return profile for investors.

Note: In my previous article I have covered a comprehensive comparison of the two best infrastructure funds, you may consider reading - ICICI Pru Infrastructure Fund vs DSP India T.I.G.E.R Fund

#4 Bandhan Infrastructure Fund

Launched in March 2011, Bandhan Infrastructure Fund is strategically designed to invest in companies across core infrastructure sectors such as construction, energy, transportation, and urban development.

Currently, the scheme holds an AUM of Rs 1,798.34 crores. Diversifying across market segments, the fund holds a 32.28% allocation to large-cap stocks, 12.59% in mid-cap stocks and 48.04% in small-cap stocks as of November 2024. Do note that a higher allocation to small-cap stocks is considered highly risky.

Bandhan Infrastructure Fund maintains a diversified portfolio with strategic investments in its top holdings, including NTPC Ltd. (5.33%), Siemens Ltd. (5.07%), and Larsen & Toubro Ltd. (3.99%), reflecting a focus on sectors like power engineering, and construction. This strategic allocation positions the fund to benefit from diverse growth drivers within the Indian infrastructure sector.

The fund has shown a robust track record in delivering competitive returns. Over a 5-year period, it has generated an average annualised return of around 29.18%, outperforming several of its peers in the infrastructure category average. Its focus on mid and small-cap companies with strong fundamentals and high growth potential has contributed to its resilience, even during periods of market volatility.

Looking ahead, the fund is well-positioned to maintain its momentum, supported by India's economic growth, increased infrastructure spending, and ongoing reforms in the sector.

#5 - Franklin Build India Fund

Franklin Build India Fund is one of the notable infrastructure mutual funds. It primarily focuses on sectors such as construction, engineering, power, and urban development, and it aligns well with the government's infrastructure initiatives in India. Launched in September 2009, the scheme holds an AUM of Rs 2,848.49 crores.

As of November 2024, the fund has a 47.36% allocation in large-cap stocks and 13.55% in mid-cap stocks, whereas 32.46% in small-cap stocks. A higher allocation to small-cap stocks is considered highly risky due to its sensitivity to market fluctuations.

Franklin Build India Fund's diverse mix of stocks across various sectors, with the largest holding in Larsen & Toubro Ltd. at 9.42%, indicates a significant focus on the construction and engineering sectors, which are crucial for infrastructure development. ICICI Bank Ltd. and NTPC Ltd. follow with allocations of 5.48% and 5.02%, respectively, highlighting the fund's exposure to financial services and power generation sectors. These stocks collectively reflect Franklin Build India Fund's strategy to capture the growth potential across different sectors that are integral to India's infrastructure development.

[Read: Mutual Funds Are Betting Big on These Sectors: Are You Missing Out?]

Franklin Build India Fund has delivered attractive returns for its investors, reflecting the growth in the infrastructure sector. The fund's focus on both emerging and established companies within the infrastructure space has paid off, as it has consistently outperformed many of its peers over different time periods. The scheme has generated substantial returns over it's medium to long term with a CAGR ranging from 22-27%, outperforming the benchmark and category average.

The fund's ability to adapt to market conditions and its proactive management strategy ensure that it remains aligned with the evolving infrastructure landscape, making it a strong contender for investors seeking long-term growth opportunities in the Indian infrastructure sector.

Although sectoral mutual funds could be a good diversifier to your portfolio, it takes at least a few years to reach their potential. Hence, investors may consider taking a plunge into these mutual funds only after thorough market research and assessing their suitability.

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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.