scorecardresearchNFO Review: Should you invest in the Bandhan Financial Services Fund?

NFO Review: Should you invest in the Bandhan Financial Services Fund?

Updated: 11 Jul 2023, 01:28 PM IST
TL;DR.

The Bandhan Financial Services Fund is a sectoral fund that would invest exclusively in the financial services sector. Pick up any index fund, and you will find at least 25-35 per cent weightage to this sector. Does this still make sense to put your money exclusively in this sector?

Bandhan Mutual Fund launched the Bandhan Financial Services Fund recently.

Bandhan Mutual Fund launched the Bandhan Financial Services Fund recently.

Bandhan Mutual Fund recently launched the Bandhan Financial Services Fund on July 10, 2023. The new fund offer (NFO) will close on July 24, 2023, thus, lending around two weeks’ time to investors to apply to the same. Given how the financial services sector has outperformed most other sectors and is still expected to go beyond, does it make sense for inclined investors to avail of this NFO that aims to generate long-term capital appreciation by investing predominantly in equity and equity-related instruments of companies engaged in financial services?

The Nifty Financial Services Index touched its new high of 20,577 in intra-day deals on July 4, 2023. The index experienced an upward trajectory in the stock market, largely attributed to the HDFC-HDFC Bank merger. Furthermore, factors such as enhanced asset quality, improved margins, and robust loan growth have contributed to the index reaching new record levels. Though its peer, the Nifty PSU Bank Index has given better and multi-bagger returns, many experts see better, long-term prospects in the Nifty Financial Services Index.

Compared to the Nifty PSU Bank Index, which solely represents public sector banks, the Nifty Financial Services Index presents more favourable long-term investment prospects. This is due to its diversified composition, stronger correlation with market indices, and a positive track record of historical returns. The measures taken by the Government and the Reserve Bank of India (RBI) to support the economic revival no doubt continue to benefit the sector and will accelerate the growth of this sector in the long run.

However, does this mean that you should invest in this fund? Hiren Thakkar, Chartered Accountant Proprietor, Hiren S Thakkar & Associates does not advocate putting money in this fund. Thakkar explains, “In my opinion, one should not invest in a separate financial services fund. In Nifty 50 weightage to the BFSI sector is 37 per cent and in Nifty Next 50 its 19 per cent weightage. So, both frontline large-cap indices are highly concentrated in the BFSI sector which removes the need for a separate thematic fund. One can invest in thematic funds when weightage in indices is low.”

Moreover, this is a new fund launch, which means that there is no way for investors to gauge its future performance. The fund house shares the proposed asset allocation in the Scheme Information Document as under.

Instruments

Indicative allocations (% of total assets)

Risk Profile

Minimum

Maximum

Equity and equity-related instruments of companies engaged in the financial services sector

80%

100%

Very High

Equities & equity-related securities other than above and overseas securities

0%

20%

Very High

Debt Securities and Money Market Instruments (including Government securities, Securitised debt)

0%

20%

Low to Moderate

Units issued by REITs & InvITs

0%

10%

Very High

However, a lot depends on how the fund manager decides on the allocation, the expected portfolio turnover, and myriad other parameters that can be evaluated only when the fund has been in vogue for at least a year or more. Though past returns do not mirror future performance, it helps one assess the fund’s outlook and potential in the long run and its suitability to one’s investment portfolio.

As again, Rishabh Parakh, Chief Play Officer, NRP Capitals explained, “Never invest in a sectoral fund unless you are doing it based on your risk profile. Sectoral funds come with a high-risk-reward proposition and timing the exit if you make a good profit when the sector outperforms is extremely important apart from having the patience to stay silent when the sector remains stagnant for years together.”

Who should invest in this sector or fund?

Investors who are interested in making a focused investment in the BFSI sector can consider investing in this fund. While your current portfolio may provide some exposure, a sector fund adds an extra dimension to it.

Viral Bhatt, Founder, Money Mantra advised, “The Bandhan Financial Services Fund is a new open-ended equity scheme that invests predominantly in equity and equity-related instruments of companies engaged in the financial services sector. The fund has a high-risk profile and is suitable for investors who have a long-term investment horizon and can tolerate the risk of volatility.

Some of the investors who may be interested in this fund include:

  • Investors who are looking to invest in the financial services sector, which is a key driver of growth in the Indian economy.
  • Investors who believe that the financial services sector is poised for long-term growth, given the increasing demand for financial services in India.
  • Investors who are looking for a high-growth investment option with the potential for high returns.

However, it is important to note that the financial services sector is a cyclical sector and can be volatile in the short term. Therefore, investors should only invest in this fund if they are comfortable with the risk of volatility and have a long-term investment horizon.”

It’s worth noting that timing becomes crucial when investing in sector-specific funds, as it's important to capitalize on the upward cycle and exit before the downward cycle begins.

In the end, it depends on your outlook, risk appetite, and how comfortable you are with unforeseen market changes.

 

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First Published: 11 Jul 2023, 01:28 PM IST