Investors can sell the units in Reliance Infrastructure fund.

While infrastructure as a theme has underperformed broad markets over the last couple of years, this fund has significantly lagged its benchmark BSE 100 as well as peers.

Delay in deploying its offer proceeds in 2009 has cost the fund dearly in terms of returns.

Had you invested Rs 10,000 in this fund during its launch in June 2009, your investment will now be worth Rs 6,500, taking a nasty 35 per cent loss. The fund's benchmark, on the other hand, rose by about 2 per cent during this period.

Besides, the fund's exposure to risky mid- and small-cap stocks now, at a time when the infrastructure theme has been de-rated in the market, does not inspire confidence. Investors can, instead, switch to regular diversified funds.

Sector woes

Infrastructure and engineering sectors have been languishing after their short-lived bounce-back in 2009. Policy issues and macro events such as investment activity have become key determinants for a turnaround in the performance of stocks in the sector. This makes it increasingly difficult for investors to take a call on the infrastructure theme, unless, of course, they follow the sector events closely. On the other hand, well-managed diversified funds have, time and again, proved their capability to time entries into opportune sectors. Any rally in the infrastructure theme, therefore, is likely to be identified by diversified funds as well.

Performance

Reliance Infrastructure could not capitalise much during the 2009 rally as it had yet to deploy its massive NFO collection of Rs 2,350 crore in the market. By December 2009, it was only 75 per cent invested in equities and therefore only gained about 14 per cent between July and December 2009, when many of its peers managed well over 20 per cent. In 2010, it was the only infrastructure fund, besides Sahara Infrastructure, to deliver negative returns.

Regardless of the sector travails, Reliance Infrastructure has had a forgettable performance. The fund declined 36 per cent in the last one year, far higher than Canara Robeco's fall of 14 per cent and the category average of 24 per cent.

Canara Robeco's large-cap focus helped it contain declines better.

Reliance Infrastructure's presence in small and mid-cap infrastructure stocks, seen as risky in the current market condition, appears to have led to its underperformance. The fund has only 40 per cent exposure to stocks with a market capitalisation of over Rs 10,000 crore. Over 50 per cent of assets are parked in small and mid-cap bets.

SPML Infra, Jayaswal Neco Industries, Gayatri Projects, PSL and KSB Pumps are some of the small and mid-cap companies in its portfolio that do not inspire confidence based on their current fundamentals. Besides, given that many engineering and infrastructure companies with a good track record are presently available at reasonable valuations, bets in smaller companies increase the risk profile of the fund.

Assets under management have fallen over 70 per cent to Rs 670 crore, far higher than the decline in NAV since launch. This suggests investors have been in withdrawal mode.

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