Rebound in car sales. Should you invest in transport sector mutual funds?

0

Transport and logistics are the growth engine of any economy. Investing in these sectors can give you better returns if you invest in them at the right time. What encompasses the transportation and logistics sectors and whether you should invest in this sector, let’s discuss.

What is covered by transportation?

Let’s talk about the transport sector first. It includes manufacturers of all vehicles, whether two-wheelers, three-wheelers, tractors, passenger cars and utility vehicles. It also includes all their suppliers.

At first glance, a car looks like a single product, but do you know that a single car contains about 30,000 parts, counting each part down to the smallest screws, nuts and bolts. Some of these parts are made by the manufacturer themselves, but there are many other parts for which the industry depends on suppliers who manufacture many of these parts. The approximately 30,000 parts use different raw materials and different manufacturing processes.

Thus, all automobile manufacturers and those who supply their parts constitute the transport sector.

What is covered by logistics?

The new logistics policy unveiled by the government has brought the logistics sector into the limelight. It includes all industries that bring goods from a manufacturer to its final consumer. So, the entire supply chain, railways, shipping companies, delivery and courier companies are part of the logistics industry.

Should I invest in these funds?

Sales of passenger vehicles have recorded unprecedented growth in recent months. There are various reasons that have kept the demand for vehicles growing over the years.

Owning a vehicle that was considered a luxury in the good old days has now become an absolute necessity for getting around cities and towns, especially smaller places where the public transport system is not robust. Demand is further fueled by increasing population, migration and rapid urbanization. The increase in consumerism is another reason for the increase in demand for two and three wheelers.

Demand was further aided by the ease of financing to purchase a vehicle as well as an increased ability to repay the loan due to increased disposable income, especially among millennials. As India transitions from a developing to a developed country, the number of vehicles per capita will catch up sooner rather than later.

Moreover, the promotion of the electric vehicle to reduce the dependence on fossil fuels will lead to enormous changes and demand for electric automobiles and automotive auxiliary products.

Logistics sectors are also gaining importance lately due to the shift from physical mode of shopping to online shopping. Improved communication facilities, especially the expansion of Internet facilities, have opened up many opportunities for e-commerce. The rise of e-commerce is a major driver for the logistics industry. This sector is changing from a predominantly organized sector to an organized sector with a list of more logistical companies. This provides more investment opportunities. The New Logistics Policy (NLP) announced by the government has just underlined the importance of this sector and the government’s support for this sector. With increased infrastructure for logistics sectors under the NLP, the cost of logistics companies will decrease in the future, which will increase their profitability.

The transport and logistics sectors will perform well in the future due to the multi-year growth opportunities in the mobility services sector.

Investment opportunities available

Since you cannot invest in adequate research to discover companies that have potential in these sectors, you can invest in them through mutual funds. UTI Transportation and Logistics Fund has been in existence for more than 15 years and was launched on August 01, 2005. Joining the same sphere are IDFC Transportation and Logistics Fund and ICICI Prudential Transportation and Logistics Fund which are currently open. The UTI transport and logistics fund has performed well in the past. It has grossed around 15% on an annual basis since its inception despite a lull for the personal car segment in between.

Risk associated with investing in thematic funds

Investing in the transport and logistics sector is thematic in nature and therefore carries the higher risk associated with investing in thematic funds. Thematic investing results in higher returns in some years and can yield sub-optimal returns in other years when the theme is not playing out in the market. You should therefore invest in such thematic funds if you have a higher risk appetite. Since it is a long-term themed product, those with a time horizon of at least 5 years only should invest in it.

Tax treatment of the profits of this fund

These funds mainly invest in Indian stocks which they qualify as equity based schemes under tax laws and any profits made on investments held for 12 months or longer are treated as long term capital gains and taxed at a flat rate of 10% after an initial non-taxable gain of one year. lakh. Profits made on investments held for less than 12 months are treated as short-term capital gains and taxed at a flat rate of 15%.

Balwant Jain is a tax and investment expert and can be reached on jainbalwant@gmail.com and @jainbalwant on Twitter.

Catch all the mutual fund news and updates on Live Mint. Download the Mint News app to get daily market updates and live trade news.

More less

Share.

Comments are closed.