Banking Sector Mutual Funds to Invest in India 2024

  • 10 May 2024
  • Read 26 mins read

Banking funds are equity funds that invest at least 80% of their assets in the finance, banking, and insurance sectors. These funds are primarily aimed at banks, financial institutions, insurance firms, and similar enterprises. Investing in a public sector bank's mutual fund can provide exposure to this specific segment of the financial market and offer potential returns aligned with the performance of public-sector banks.

To determine the investment strategy, one must examine current market developments. When watching the growth of sectors like infrastructure, you can invest in specialised mutual funds, such as those focused on energy, steel, and cement stocks. You can also look at sector funds, such as the Bank Mutual Fund, which focuses on specific sectors. Investing in banking mutual funds can be a smart move if you are optimistic about the future of the Indian banking sector. 

Before making any decisions, let us look at the specific characteristics of bank Mutual Funds.

What are Banking Mutual Funds?

A specific category of equity funds strategically targeting the banking sector is called Banking Funds, generally known as Sectoral Banking Mutual Funds. Investing in Banking Sector Mutual Funds India can be a strategic choice for those seeking the best SIP in banking sector in the financial markets. In the banking sector, these funds mainly allocate their assets to equity or other related instruments. A crucial objective of banking mutual funds is to provide investors with concentrated exposure to a diversified portfolio of bank securities. With this targeted approach, investors can exploit the potential growth and performance of the banking sector.

Banking funds tend to focus their investment strategy on equity, whereas banking institutions have very different performance and dynamics. As a result, they present a compelling choice for individuals hoping to share in the banking sector's prosperity. In India, allocating assets to banking Mutual Funds is systematically tailored to align with the dynamics within the banking sector. These funds seek to achieve maximum returns for their investors by mainly investing in stocks and equity-related instruments of banks.

 

Top 10 Banking Sector Mutual Funds

The best banking sector mutual funds in India are as follows. 
 

Fund Name Fund Size5Y Returns
Sundaram Financial Services Opportunities FundRs. 876 Crs21.15%
Nippon India Banking & Financial Services FundRs. 4,588 Crs19.61%
Invesco India Financial Services FundRs. 575 Crs18.45%
Tata Banking And Financial Services FundRs. 1,672 Crs17.87%
Aditya Birla Sun Life Banking & Financial Services FundRs. 2,787 Crs17.35%
ICICI Prudential Banking And Financial Services FundRs. 6,740 Crs14.98%
SBI Banking & Financial Services FundRs. 4,245 Crs14.63%
UTI Banking And Financial Services FundRs. 898 Crs13.93%
Bandhan Financial Services FundRs. 586 Crs-
HDFC Banking & Financial Services FundRs. 2,790 Crs-

Disclaimer: This list of semiconductor stocks contains data updated as of 19th April 2024. However, it's important to conduct detailed research before making any investment decisions in these stocks.

Overview of the Top Banking Sector Mutual Funds 

Below is a brief overview of the list of bank Nifty Mutual Funds as described above:

  • Sundaram Financial Services Opportunities Fund

    The scheme, launched on June 10, 2008, invests primarily in equity and equity-related securities of Indian banking or financial services companies to achieve long-term capital appreciation. As of April 26, 2024, the current net asset value of the Sundaram Financial Services Opportunities Fund Regular Plan is Rs. 90.67 for the growth option of the Regular Plan.
    As of March 31, 2024, the Sundaram Financial Services Opportunities Fund's Regular Plan has assets amounting to Rs. 1171.3 crore. A minimum investment of Rs. 100 and a minimum additional investment of Rs. 100 will be required.
  • Nippon India Banking & Financial Services Fund

    The scheme, launched on May 26, 2003, aims to generate a continuous return by actively investing in equity and capital-linked securities of banks and financial services companies.
    The current Net Asset Value of Nippon India Banking & Financial Services Fund as of April 26, 2024, is Rs. 522.08, which represents the Growth option in its standard plan. As of March 31, 2024, Nippon India Banking and Financial Services Fund held Rs. 5307.29 Crore assets.
  • Invesco India Financial Services Fund

    The scheme, launched on July 14, 2008, aims to generate capital gains from a portfolio of equity-related instruments issued by companies engaged in banking and financial services.
    For the growth option of its standard plan, Invesco India Financial Services Fund's current net asset value as of April 26, 2024, is Rs. 114.13. As of March 31, 2024, the Invesco India Financial Services Fund's assets under management amounted to Rs. 743.52 crore.
  • Tata Banking And Financial Services Fund Direct-Growth

    The scheme seeks capital appreciation through investments in at least 80% of the company's Net Assets on equity and other financial instruments for Indian Banking and Financial Services companies. As of April 26, 2024, the current net asset value of the Tata Banking and Financial Services Fund's Direct Plan is Rs. 40.71 for its Growth Option. The scheme was launched on December 28, 2015.
    As of March 31, 2024, the Tata Banking and Financial Services Fund - Direct Plan had assets valued at Rs 1943.23 crore under management. The fund returned an impressive 18.83% in the past year, and its average annual return since inception has been 18.09%. It is important to note that the fund has consistently increased its investment capital every four years.
  • Aditya Birla Sun Life Banking & Financial Services Fund

    The program aims to increase capital appreciation over time by investing predominantly in equity and debt securities of banking or financial services companies. The scheme would invest in banks, NBFCs, insurance companies, rating agencies, brokers, etc. It was launched on December 14, 2013.
    As of April 26, 2024, the current net asset value of the Aditya Birla Sun Life Banking & Financial Services Fund Regular Plan is Rs. 52.28 for the growth option of the Regular Plan. As of March 31, 2024, the Aditya Birla Sun Life Banking and Financial Services Fund has an asset base worth Rs. 2989.64 crore in its Regular Plan.
  • ICICI Prudential Banking And Financial Services Fund

    The scheme aims to maximise long-term capital gains by investing in equity and equity-related securities of banks and nonbank financial companies in the banking and financial services sector. The benchmark, the BSE Bankex Index, which consists of equities, will hold a substantial portion of the scheme's assets. The Fund was set up in August 2008.
    The current net asset value of the ICICI Prudential Banking and Financial Services Fund, as of 26 April 2024, is Rs 109.20 for its Growth Option under regular plans. As of March 31, 2024, the ICICI Prudential Banking and Financial Services Fund's assets under management amounted to Rs. 7489.91 crore.
  • SBI Banking & Financial Services Fund

    The scheme aims to generate long-term capital appreciation by investing in a portfolio predominantly in equity and equity-related securities of companies engaged in banking and financial services. The Fund was launched on 26 February 2015.
    As of April 26, 2024, the SBI Banking & Financial Services Fund - Regular Plan's Growth option has a current net asset value of Rs 33.86. As of March 31, 2024, the SBI Banking & Financial Services Fund - Regular Plan has assets valued at Rs 5056.05 crore under management.
  • UTI Banking And Financial Services Fund

    The scheme, launched on January 1, 2013, aims to generate long-term capital appreciation by investing primarily in company and equity-related securities from banks and financial services undertakings.
    As of April 26, 2024, the current net asset value for UTI Banking and Financial Services Fund's Direct Plan is Rs. 176.30 per growth option. As of March 31, 2024, the Fund's Direct Plan currently has Rs. 1031.88 crores in assets under management.
  • Bandhan Financial Services Fund

    The scheme aims to provide sustainable capital appreciation by investing primarily in equity and equity-linked instruments of companies involved in financial services. The fund was launched on July 28, 2023.
    As of April 26, 2024, the current net asset value of the Bandhan Financial Services Fund Regular Plan is Rs. 12.28 for the Growth Option of the Regular Plan. As of March 31, 2024, the Bandhan Financial Services Fund's Regular Plan held Rs. 748.74 crore assets.
  • HDFC Banking & Financial Services Fund

    The scheme, introduced on 30 June 2021, seeks to provide long-term capital appreciation by investing primarily in equity and equity-related instruments of companies engaged in banking and financial services.
    As of April 26, 2024, the HDFC Banking & Financial Services Fund - Regular Plan's Growth option has a current net asset value of Rs 14.42. As of March 31, 2024, the HDFC Banking & Financial Services Fund - Regular Plan had assets valued at Rs 3178.36 crore under management.

Why Invest in Banking Sector Mutual Funds?

The banking sector is at the heart of any economy, and investment in Banking Sector Mutual Funds can offer intelligent investors an attractive set of advantages. Consider allocating your funds to this dynamic sector for the following reasons.

  • Stability and Resilience

    Due to the intense nature of the banking sector, funds from this Sector often demonstrate stability and resilience. These funds may be a reliable anchor for your investment portfolio, particularly during market fluctuations.
  • Capitalising on Economic Growth

    Funds in the banking sector are well-placed to benefit from economic growth. As economies grow, demand for banking and financial services is likely to increase, which could lead to increased profitability in this sector and for mutual funds that have invested in it.
  • Diversification Benefits

    Including financial services mutual funds in your investment portfolio can provide diversification benefits. These funds usually invest in various financial instruments in the sector, spreading risk and enhancing the overall stability of your investment portfolio.
  • Profit from the Movements in Interest Rates

    Interest rate movements regularly affect the performance of banking stocks. Mutual funds in the banking sector may take advantage of rising interest rates, which could lead to more favourable returns for investors.
  • Professional Fund Management

    Mutual fund investments in the banking and financial sector require you to entrust your funds with experienced and qualified investment managers. These experts conduct in-depth research and analysis to make informed investment decisions and increase the likelihood of optimal returns.
  • Potential for Dividend Income

    Several mutual funds in the banking sector have a record of paying dividends. This is attractive to income investors who want a consistent source of income and potential for capital appreciation.

Who Should Invest in Banking Mutual Funds?

Compared with other categories of mutual funds, sectorally focused banking funds represent a higher concentration risk. During a time of prosperity in the banking sector, they appeal to investors with a risk appetite who seek higher returns than average. Such funds allow investors to exploit the potential of bank stocks for long-term gains in a way that is suited to those who seek an active investment style. 

An extended investment horizon is essential to reducing the related risks. These funds expose investors to a portfolio of the best-performing banking stocks, which can yield higher returns.

Features of Banking Mutual Funds India

The main features of mutual funds in the Banking Financial Services Sector are as follows: 

  • Specialised Segment

    Banking Mutual Funds are a separate category within the broader sector of mutual funds in India, which is focused on banking investment.
  • Professional Management

    Each bank mutual fund is professionally managed by an Asset Management Company, which strategically allocates the Fund's capital to various securities in the banking sector and bank financial services.
  • Investment Pool Dynamics

    Financial mutual funds combine contributions from several participants, just like other mutual funds. These contributions are accepted regularly, weekly, fortnightly, or monthly, resulting in a diverse pool of resources.
  • Maturity and Earnings Distribution

    Each banking mutual fund has a predetermined maturity date. After accounting for the asset manager's fees, the fund will distribute its profits to its contributors beyond that date.
  • Diversified Portfolio

    By investing in various banking companies, banking mutual funds give investors exposure to a wide range of aspects of the banking sector, including retail and investment banking.
  • Positive Banking Sector Trends

    Given the current trend, AMCs are beginning to view the Indian banking sector as a top investment option. This illustrates the industry's appeal and potential for high profits.

Factors to Consider Before Investing in Banking Mutual Funds

Factors investors should consider before investing in banking mutual funds are as follows.

  • Risk Dynamics

    Sector banking funds have a higher level of risk because they exclusively invest in a specific sector. If the banking sector is doing well, these funds are particularly for adventurous investors.
  • Time Commitment

    Staying invested for a minimum of five years significantly reduces the risk. Ensure your investment is aligned to this time horizon for the best results.

How to Invest in Banking Sector Mutual Funds?

The various ways to invest in mutual funds in the banking sector are as follows.

  • Thorough Research

    Conduct deep research into the various mutual funds available in the banking sector before committing. Analyse their performance history, the expertise of fund managers, and the banking sector's overall performance.
  • Evaluate Risk Tolerance

    These funds can experience volatility, particularly in the light of sector-specific events. To achieve a sound investment approach, you must balance your risk tolerance with the banking industry's inherent instability.
  • Diversification Strategy

    Choose a diverse portfolio in the banking sector. Share your investments among different banking instruments to reduce the risks related to a particular area of focus. Diversification is a powerful instrument for long-term stability.
  • Stay up to date with the market trends

  • Keep an eye on market developments and updates in the banking sector. Changes in financial conditions, legal frameworks, and technological progress can strongly influence mutual funds in this sector.

How to Choose Good Banking Sector Mutual Funds?

Consider the pointers below to choose the best mutual funds in the banking sector.

  • Performance History

    To start, evaluate the fund's previous track record. Analyse its track record in various market conditions to determine its consistency. Look for funds with a history of stability and growth.
  • Fund Manager's expertise

    The fund manager's expertise is critical to the fund's success. Look at the managers' track records, banking sector experience, and ability to cope with market fluctuations. A competent fund manager can significantly contribute to the fund's performance.
  • Fund size and liquidity

    Consider the size of the mutual fund and its liquidity. Higher funds are likely to provide more excellent stability, while liquidity offers you easy access to the stock market and does not adversely affect the value of your fund. A smoother investment experience is made possible by the appropriate size and liquidity.

How Are Returns Calculated on Banking Sector Mutual Funds?

Here is a breakdown of how to calculate banking sector mutual funds.

  • Net Asset Value

    The net asset value (NAV) is linked to the returns of mutual funds, including those focused on the banking sector. It indicates the market value of a fund's assets minus liabilities. This value is calculated by dividing it by the total number of outstanding units and providing a per-unit value. Changes to NAVs over time reflect the fund's performance and its direct effects on returns.
  • Dividend distribution

    Some mutual funds in the banking sector distribute dividends to unit holders. These funds' returns include both capital appreciation and dividends, which investors need to consider when assessing an investment's total return.
  • Total Return Index

    Considering that the total return index is necessary, measuring the overall performance of mutual funds in the banking sector is essential. TRI accounts for capital gains and income the Fund generates, which differs from traditional indices. This comprehensive measure provides a more complete picture of the Fund's results.

Taxability on Banking Sector Mutual Funds

Tax is imposed on banking funds, similar to the taxation of equity investments. The gains are based on tax and the holding period after the redemption of the mutual fund units. 

  • Short-term capital gains realised within 12 months are subject to a fixed 15% tax, irrespective of the level of taxation. 
  • Without indexation benefits, long-term capital gains from the sale of units after 12 months are taxed at a flat rate of 10 %.

Benefits and Risk of Investing in Banking Mutual Funds

Benefits of Banking Mutual FundsRisks of  Banking Mutual Funds
Historical Record:  According to a 2017 study that The Economic Times released, the mutual fund banking industry earned 38% in a single year, 21% in three, and 15.30% in the preceding five years. Looking at this sector's success over the three months that concluded in November, you get a figure of 15%, which is excellent. Significance Regardless of your investing horizon length, the banking industry offers solid returns.Market Sensitivity: Market volatility is a particular concern for banking mutual funds. Economic conditions, interest rates, and regulatory changes are critical to the banking sector. Investors should anticipate how these external influences may affect the performance of banking funds. 
Protection:  The Indian banking sector has several checks and balances. The Reserve Bank of India and the government impose strict conditions on opening, expanding, or shutting down a bank. Therefore, depositors and lenders need not fear the volatility in this sector.Risk of Non-Performing Assets (NPAs):  The banking sector is concerned about the risk of non-performing assets, which may negatively affect the performance of mutual banking funds. Investors should closely monitor the quality of the assets held by the funds and be kept informed of the overall health of the banking sector.
Stability: India's banking sector is also relatively stable, with no risks or shocks common in other sectors such as IT, oil, and automotive. Therefore, investing in this sector is well worth it.Regulations:  The financial industry is prone to regular regulatory modifications that can significantly affect banks' profitability and day-to-day operations. Investors in banking mutual funds must monitor regulatory changes and consider the potential impact on their investment approach.

Conclusion
Mutual funds focusing on the banking sector have performed well over recent years. This success can be attributed to increased bank penetration, reduced NPAs, and streamlined mergers. This sector can be further stimulated by optimising the NPA ratio, increasing digital transactions, and improving performance. For safe and secure mutual fund investment, check out a reliable stock market app to ease out your investments.

FAQs of Banking Mutual Funds

A specific class of equity funds purposefully created to concentrate on the banking industry is called banking funds, sometimes called sectoral banking mutual funds. 

Investing in a bank mutual fund is an exciting option. These funds are typically focused on a combination of assets in the banking sector, which can provide exposure to industry stability and growth.

Investing in banking mutual funds is partially risk-free. Factors like market conditions, economic trends, and the specific securities that form part of the fund may alter the level of risk linked to a banking Mutual Fund.

Enter your name, email address, PAN number, and Aadhaar Number to sign up for an Internet Platform of your choice. Copies of your PAN card, Aadhaar card, and bank statement should be uploaded to verify your identity. Select a mutual fund appropriate for your investment objectives and risk tolerance.

In addition to evaluating the consistency and stability of the returns, you should compare the mutual fund's performance to that of its peer group and benchmark. Select a mutual fund that has beaten its benchmark and category average and has consistently and superiorly delivered returns over the long run.