Driven by the underperformance of financial heavyweights, banking & financial services sector-focused equity mutual funds have given an average return of just 2.81% in the last 3 months. During the period, Bank Nifty has underperformed with just 2.4% return as against 5% upside seen in Nifty.
Quant BFSI Fund, the topper in the category, gave 13.45% return in the last three months. This scheme was the only scheme that offered double-digit returns.
SBI Banking and Financial Services Fund gave 6.17% return in the last three months. ICICI Prudential Banking and Financial Services Fund, the largest scheme in the category based on assets managed, gave 2.75% return. Nippon India Banking and Financial Services Fund, the oldest scheme in the category, gave 1.67% return in the said period.
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The analysis further showed that two schemes gave negative returns. LIC MF Banking & Financial Services Fund and Tata Banking and Financial Services Fund lost 2.30% and 0.56% in the last three months.
Wondering what factors led to this performance by the banking & financial services funds in three months? “The performance of banking and financial services funds has been influenced by a mix of regulatory changes and sector-specific challenges. Specifically, the recent regulatory adjustment increasing the risk weight for unsecured lending categories could potentially decelerate growth in personal loans and credit card segments in the near term. However, the sector appears robust with no significant asset quality issues on the horizon, and credit cost trends are not anticipated to cause concern in FY24,” said Chakrivardhan Kuppala, Cofounder and Executive Director, Prime Wealth Finserv.
The banking & financial services sector based mutual funds gave the third lowest return in other horizons as well. In the last five years, these funds gave an average return of 12.71%. In the last 10 years, these funds gave an average return of 15.44%. In 2024 so far, these sector based schemes have offered 3.95% return.
Will these schemes continue to perform in a similar manner going forward? What is in store for the banking sector? “The banking sector’s outlook is positive, with expected reductions in loan defaults (slippages) and consistent recoveries, which should further improve asset quality,” comments Kuppala.
Further analysis of data for a three month period showed that out of 18 schemes in the category, 16 schemes have managed to outperform their respective benchmarks. Only two schemes failed to outperform their benchmarks.
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These schemes are benchmarked against Nifty Financial Services – TRI, S&P BSE BANKEX – TRI and NIFTY BANK – TRI which offered 0.26%, 0.59%, and 0.69% respectively in a three month period.
Looking to invest in these schemes? What strategy should you follow if you are an existing or a new investor looking to invest in these schemes? “ Investors currently holding these funds might consider staying the course, given the sector’s positive long-term outlook. The underlying fundamentals of the banking sector, including a benign credit cost environment and an encouraging asset quality outlook, suggest potential for recovery and growth,” recommends Chakrivardhan.
He adds, “For new investors, the current valuations present an attractive entry point, especially when compared to the broader market. However, as always, investment decisions should align with one’s risk tolerance, investment horizon, and financial goals.”
Note, all regular and growth option schemes were considered for the study. We calculated a three month period return from January to April 2024.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)
