Mutual funds are one of the most popular investment vehicles for individual investors, offering a convenient and accessible way to invest in a diverse range of stocks, bonds, and other securities.

According to AMFI, The MF Industry’s AUM has grown from ₹ 21.27 trillion as on December 31, 2017, to ₹39.89 trillion as on December 31, 2022, around a two-fold increase in 5 years. 

There are various sectors in which one can make investments, banking and financial services being one such sector. 

In this article, we will discuss the meaning and why you should choose Banking and Financial services funds. 

Banking and Financial Services Fund – Meaning

A banking and financial services fund is a type of equity sector fund that invests in a portfolio of companies in the banking and finance industry. These companies may include banks, insurance companies, investment firms, and other financial services providers. 

The objective of a banking and financial services fund is to provide investors with exposure to the performance of the financial sector and to potentially generate returns through the appreciation of the underlying securities in the fund’s portfolio.

Why is the banking and financial sector fund a lucrative investment?

The banking and financial sector usually grows because it’s connected to how well the economy is doing.

In a growing economy, there is an increased demand for credit and financial services, which drives growth in the banking and financial sector. 

Additionally, technological advancements and increasing globalization have led to growth in the financial sector, making it easier and more convenient for individuals and businesses to access financial services. As a result, investments in this sector have become increasingly attractive to investors looking for growth opportunities.

Some of the points that highlight that the banking sector will boom in the coming future are as follows:

1. By 2025, it’s predicted that India’s Fintech market will be worth Rs. 62 trillion, thanks to the increasing population and people having more money to spend.
2. With the latest developments related to mobile banking and people choosing to bank online, RBI is working relentlessly to provide a seamless banking experience to users.
3. According to IBEF, Rising fee incomes are improving the revenue mix of banks. Also, high net interest margins and low NPAs will ensure healthy business fundamentals.
4. As per a report by RBI, in 2021-22 and 2022-23, the balance sheets of scheduled commercial banks (SCBs) in India have expanded strongly, fuelled by robust credit demand. Their asset quality and profitability have improved, while low slippages and high capital buffers reinforce investor confidence in banks.
5. RBI also highlighted proactive measures that revolutionized the payment and settlement ecosystem, enhancing the consumer experience, deepening digital reach, and aiding financial inclusion. The introduction of UPI123Pay has facilitated access to a unified payments interface (UPI) to more than 40 crore feature phone subscribers in the country. 

Top 5 Banking and Financial services funds

1. Sundaram Financial Services Opportunities Fund : This fund was launched in 2013. According to ET Money, it has an AUM worth $619 crore as of 31/12/2022.
2. Tata Banking and Financial Services Fund : Launched in 2015. Its AUM is Rs.1305 crores.
3. Nippon India Banking and Financial Services Fund : Launched in 2013, this fund has an AUM of Rs.4020 crores.
4. SBI Banking and Financial Services Fund was launched in 2015 and had an AUM of Rs.3991 crores.
5. ICICI Prudential Banking and Financial Services Fund : Launched in 2013, this fund has an AUM of Rs.5519 crores.

Upcoming NFO

Kotak Mutual Fund is coming up with its NFO for Kotak Banking and Financial Services Fund Regular Growth. The NFO period is from February 6, 2023, to February 20, 2023, with a minimum investment amount of Rs.5000.

It is important to note that these sectoral funds are very risky, and investments should be made by doing prior research.

Points to keep in mind while investing in Banking and Financial Services Funds

When investing in Banking and Financial Services Funds, remember these points to avoid investment mistakes:

1. Every sector has a different risk profile. Banking and Financial Services Funds are high-risk funds. It is important to understand your risk appetite before investing in such funds.
2. If you wish to invest in new funds offer (NFO), it is important to keep an eye on the fund house. A fund house with a great track record will attract more investors, and their funds will perform better.
3. Expect to get a different return every year. The markets keep on fluctuating, and any volatility affects the funds. Therefore, you must factor in the volatility while investing.
4. Your investment goals should be clear before making any investments. For example, If you wish to invest in funds that are less risky and for a longer period. So, you would choose a debt fund. As far as NFOs are concerned, some funds come with a lock-in period and a distinct investment horizon that aligns differently from the investors’ investment goals or styles. Additionally, there is a set minimum investment amount for NFOs, which may differ from when the fund is accessible for a normal subscription.
5. The fund’s manager plays a crucial role in the success of a fund. Consider the manager’s experience, investment style, and track record in managing similar funds. Research the manager’s background and look for any red flags, such as regulatory violations or poor performance.
6. Funds come with various fees and expenses, including management, administrative, and transaction fees. Ensure you understand the fees associated with the fund and how they compare to similar ones. High fees can affect your returns, so consider the costs when making your investment decision.
7. The tax implications of investing in a fund can vary depending on the type of fund, your tax situation, and your country’s tax laws. Ensure you understand the tax implications of investing in the fund and how it fits into your overall investment strategy. Consider consulting a tax professional to understand the tax implications of your investment.

Disclaimer:

This article is for informational purposes only and is not to be taken as investment advice.

For investment-related queries, contact prernamf@gmail.com (ARN-125044).