Fund of Fortnight

Fund of Fortnight

This is our mutual fund recommendation. Every fortnight , we recommend one open-ended equity diversified fund that has the best potential of returns for the next one year considering its constituents remain the same. 

SBI Banking & Financial Services Fund - Direct Plan

Reason for recommendation

In the last one week, Bank Nifty has been up by more than 3 per cent and has outperformed all the sectors except for Nifty PSU Bank, which is up by almost 5 per cent. Nifty in the same period is up by a mere 1.24 per cent. Nevertheless, if we see the events over the last six months, Bank Nifty had remained one of the worst performers. It was up by only 10 per cent compared to 20 per cent by Nifty. But the reason for its current outperformance can be attributed to the announcement that the Union Cabinet has cleared the formation of National Asset Reconstruction Company (NARCL) or ‘bad bank’. This will help in a speedy clean-up of asset quality, which will pave the way for accelerated credit growth by banks burdened with high non-performing assets. Besides, the economy is witnessing revival through the corporate profitability of many sectors, especially capital-intensive like metal, cement, pharmaceuticals, power and textiles, which will further help the banking sector. One of the funds that are going to accrue benefit out of such development is SBI Banking and Financial Services Fund, which has remained the best performer in its category over the past five years. It has generated 17.63 per cent annualised return in the last five years compared to 14 per cent by its category and peers. It has one of the lowest expense ratios in its category and the best risk statistics.

Currently, the fund holds 19 stocks out of which a majority is in banks and the rest in financial services companies including insurance. The major chunk of the fund’s corpus is invested in banking leaders such as HDFC Bank, ICICI Bank and SBI. These banks will be the primary beneficiaries of economic growth. It has also recently increased its stake in HDFC Bank that till now has remained a laggard within the banking category and may catch up in the coming months. This will help the fund to outperform. Nevertheless, an investor should understand that it is a sector fund and carries higher risk. Thus, one should take controlled exposure to such funds.

 

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