HDFC Mutual Fund has launched Transportation and Logistics Fund NFO. The primary focus of this mutual fund scheme will be to invest in companies operating in the transportation and logistics sector. This move comes after the Government of India implemented a logistics policy last year, which is anticipated to significantly boost the growth of this sector in the upcoming years. Should you invest in HDFC Transportation and Logistics Fund NFO? What are the various risk factors associated with such funds?
HDFC Transportation and Logistics Fund – NFO Issue details.
| NFO Opens | 28-Jul-23 |
| NFO closes | 11-Aug-23 |
| Scheme reopens for continuous purchase/sale | Within 5 business days |
| Minimum Application Amount | ₹ 100 and in multiples of ₹ 1 thereafter |
| Minimum SIP | ₹ 100 for 6 months |
| NAV of the fund | ₹ 10 during NFO period |
| Entry Load | Nil |
| Exit Load | 1% exit load if redeeemed within 1 year |
| Risk | Very High Risk |
| Benchmark | Nifty 500 Multicap 50:25:25 TRI |
| Fund Manager | Mr. Priya Ranjan |
HDFC Transportation and Logistics Fund SID
What is the investment objective of this MF scheme?
To provide long-term capital appreciation by investing predominantly in equity and equity related securities under Transportation and Logistics theme
There is no assurance or guarantee that the investment objective of the scheme will be realized.
What is the allocation pattern in this mutual fund?
This fund invests pattern is as follows:
| Type of instruments | Min % | Max % | Risk Profile |
|---|---|---|---|
| Equity and Equity related instruments of Transportation and Logistics themed companies |
80% | 100% | Very High |
| Equity and Equity related instruments of companies other than above |
0% | 20% | Very High |
| Units issued by REITs and InvITs | 0% | 10% | Medium to High |
| Debt securities, money market instruments and Fixed Income Derivatives | 0% | 20% | Low to Medium |
| Units of Mutual Fund | 0% | 20% | Low to High |
Why there is focus on transportation and logistics sector in recent times?
In our previous articles, we discussed the reasons behind the proliferation of mutual fund houses launching funds in the transportation and logistics sector.
One of the primary drivers behind this trend is the implementation of the National Logistics Policy, initiated by Prime Minister Mr. Narendra Modi last year. This policy represents a strategic and comprehensive approach to develop the entire logistics ecosystem, focusing on two major visions.
The first vision aims to reduce logistics costs in India by 5% of GDP over the next 5 years. This reduction is expected to lead to significant economic benefits and efficiencies in the transportation and logistics sector.
The second vision of the policy focuses on enhancing India’s ranking in the Logistics Performance Index (LPI). By improving logistics performance, the country can strengthen its competitive edge on the global stage.
Additionally, the National Logistics Policy endeavors to foster a more competitive logistics sector through the establishment of a unified policy environment and integrated institutional mechanisms. This approach is designed to facilitate India’s transformation into a prominent logistics hub, achieved by leveraging technology, streamlined processes, and a skilled workforce.
Furthermore, another contributing factor to the growth of the transportation and logistics sector is the push towards the adoption of Electric Vehicles (EVs) through supportive government policies. The development of EVs is anticipated to positively impact the transport segment, bringing about new investment opportunities in the industry.
Performance of existing Transportation and Logistics Funds
Over the past 10 years, there has been only one logistics fund that was launched. However, in the last year, the sector’s potential has attracted three new funds, bringing the total count of logistics funds to four. This increase in new funds signifies the growing interest and recognition of the opportunities present in this sector.
| Scheme Name | 6 M | 1Y | 3Y | 5Y | 10Y |
|---|---|---|---|---|---|
| UTI Transportation and Logistics Fund | 20% | 21% | 31% | 10% | 21% |
| ICICI Prudential Transportation And Logistics Fund | 23% | – | – | – | – |
| IDFC Transportation and Logistics Fund | 19% | – | – | – | – |
| Bandhan Transportation and Logistics Fund | 19% | – | – | – | – |
Why to invest in HDFC Transportation and Logistics Fund NFO?
The transportation and logistics sector is poised to experience significant growth in the forthcoming years, driven by the implementation of the Government of India’s National Logistics Policy, which was announced last year. Beyond this, Govt focus on PM Gati Shakti, Bharatmala, Sagarmala, UDA etc., is also expected to drive this sector.
Additionally, the government’s focus and support for the Electric Vehicle (EV) sector are anticipated to further boost this particular segment.
The booming e-commerce growth serves as a strong indicator of the transportation and logistics industry’s expansion.
Presently, the logistics sector’s market size in India stands at ₹ 16,284 billion, and projections suggest it will surge to ₹ 27,000 billion by 2026. However, the share of organized players currently only accounts for 1.5% of the market, significantly lower than China’s 7%-10% and the US’s 10%. As unorganized players shift towards organized operations and the economy continues to grow, organized players have the potential to accelerate their growth, aiming to achieve a projected growth rate of 10% to 15% by FY26.
The combination of a favorable policy environment and increased demand for logistics services and EV-related infrastructure presents promising opportunities for these mutual fund schemes.
Risk factors in such funds
One should consider some of these risk factors / negative factors before investing.
As this fund exclusively invests in a single sector, it falls under the category of a sector fund. Consequently, any downturn in this particular segment can significantly impact the performance of the mutual fund.
While the government is actively promoting the new logistics policy, the success of this initiative in the coming years remains uncertain. The potential outcomes and effects of the policy on the transportation and logistics sector are yet to be fully understood, and this uncertainty may introduce additional risks for the fund’s investments in the future.
You can refer complete risk factors of investing in this scheme to SID / KIM / NFO prospectus.
HDFC Transportation and Logistics Fund NFO – Should you invest or avoid?
This fund focuses its investments on companies within the transportation and logistics sector. It is expected that government initiatives like the India national logistics policy and a strong emphasis on the electric vehicle (EV) segment will play a significant role in boosting the growth of this sector in the upcoming years.
However, it’s important to note that this mutual fund carries some risks. By investing solely in a single sector, it becomes vulnerable to any potential downturns or adverse trends that might affect the transportation and logistics industry. Consequently, the fund’s performance could be impacted in such scenarios. Over the past five years, UTI Transportation and Logistics fund (only fund in this sector that has long term history) has delivered annualized returns of 10%, which is very low. In both short-term (less than 1 year) and long-term (over 10 years), it has generated impressive returns of over 20%.
Investors with a higher risk appetite might consider investing in such funds, but it is advisable to invest atleast for 3 years or more. For those seeking a potentially more stable option, existing logistics fund with a proven track record of performance in the medium to long term could be a good alternative.
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