The banking and financial services sector has performed fairly consistently in the past few years, thanks to the slew of reforms introduced by the Finance Ministry that included merging banks with various financial institutions while also passing various laws to improve the working of this sector. Look at the recent stock market returns, and you will realize that most of it was held by banks and financial institutions riding on the backs of strong financials and strategic growth.
Some of the biggest fund houses piled up on these stocks with more than 35 per cent of the assets under management (AUM) being allocated to the financial services sector. Many investors even inquired if putting money in sectoral funds investing exclusively in the BFSI sector will help them create wealth.
To benefit from the increased interest in this sector, Quant Mutual Fund recently launched the Quant BFSI fund on June 01, 2023. Unlike most other mutual funds, the proposed asset allocation in this fund highlights the exclusive focus on the BFSI sector.
Before this, the Kotak Mahindra Mutual Fund launched the Kotak Banking & Financial Services Fund in February 2023, an open-ended sectoral or thematic fund that would invest primarily in banking stocks.
Under normal circumstances, the asset allocation of the scheme will be as follows:
Indicative allocations (% of total assets)
Equity and Equity related instruments of companies engaged in Banking and Financial Services Sector
Equity and Equity related instruments of companies other than those engaged in Banking and Financial Services Sector
Debt & Money Market instruments
Low to Medium
Units issued by REITs & InvITs
This is not the first time that asset management companies (AMCs) in India have launched such BFSI funds in the sectoral theme category. A look at their previous five-year returns highlights how many investors have benefited from the strong performance in this sector in the past.
Mutual Fund House
Name of the Fund
5-year returns (in %)
TATA Mutual Fund
Tata Banking And Financial Services Fund
SBI Mutual Fund
SBI Banking & Financial Services Fund
Baroda BNP Paribas Mutual Fund
Baroda BNP Paribas Banking and Financial Services Fund
Taurus Mutual Fund
Taurus Banking and Financial Services Fund
Aditya Birla Sun Life Mutual Fund
Aditya Birla Sun Life Banking and Financial Services Fund
Nippon India Mutual Fund
Nippon India Banking & Financial Services Fund
Mirae Asset Mutual Fund
Mirae Asset Banking and Financial Services Fund
ICICI Prudential Mutual Fund
ICICI Prudential Banking and Financial Services Fund
IDBI Mutual Fund
IDBI Banking & Financial Services Fund
LIC Mutual Fund
LIC MF Banking & Financial Services Fund
|Source: MoneyControl, as on June 23, 2023|
One may argue that past results need not mirror future performance. Irrespective of how these fund houses have decently performed in the past, does it still justify many investors’ intent to rely exclusively on the performance of this sector?
A tête with personal finance experts reveals how diversification is necessary and that relying only on one of them to create wealth may backfire in the long run causing investors to lose their earnings to sudden market downturns while eroding their chances of accumulating the much-desired wealth.
Viral Bhatt, Founder, Money Mantra said, “The BFSI theme is broad and encompasses a wide range of industries. As such, it can be a good way for investors to diversify their portfolios and reduce risk. However, it is important to note that the BFSI sector is also cyclical, meaning that it can be volatile in the short term. As a result, investors should carefully consider their financial goals and risk tolerance before investing in this sector.”
Dev Ashish, a SEBI-Registered Investment Advisor and Founder (Stable Investor) said, “BFSI is the backbone of the Indian economy and that reflects in the allocation of almost 38 per cent to BFSI in Nifty50 and 36 per cent in Nifty100. And this kind of allocation also reflects in diversified non-sectoral funds as well. But when investing for financial goals, it is more important to look at being right about the asset allocation (i.e., how much in equity vs debt dilemma) rather than worrying too much about sectoral allocation and how it impacts individual goals. Which sector is best for investing at any given point of time is a decision best left to the fund managers of the diversified funds the investor chooses.”
Basavaraj Tonagatti, a certified financial planner and SEBI-registered investment advisor explained, “Even though in the Nifty 50 index BFSI space takes around 37 per cent place, we still need diversification as we are unsure of how this whole BFSI space will perform in the future. If you look back at the past, you notice that no sector performed consistently. Hence, I strongly suggest a diversified portfolio than relying on a sector-specific.”
The BFSI sector as a theme is both intriguing and enticing. However, this is not enough reason for investors to fall back on and rely only on a sectoral fund scheme to attain their financial goals. Wealth creation and accumulation is a gradual process and resorting to investing only in thematic funds to heap on returns quickly within a limited period can wreak havoc on investors' aim to create a decent corpus in the long run.