Banking sector funds feel heat

Stocks hit 52-week lows, with average category return a negative 16% over past year

Shares of several Indian banks, public and private, hit their 52-week lows in recent days. With a 17 per cent erosion in value since January 1, the average category return has been 16 per cent in negative territory over the past year.

The Nifty Bank index is down 16 per cent in the same period. In simple words, every Rs 100 invested a year earlier in a banking sector fund is now worth Rs 84.

There are 18 such schemes, including exchange-traded funds, managing assets worth Rs 7,000 crore or a little less than two per cent of overall equity assets under management. The category average return from a one-year perspective is minus 16.4 per cent. Over three to five years, the annual return is no more than four to five per cent. The performance looks better only in a 10-year period, with annualised return at 14.6 per cent. But, then, very few schemes even existed 10 years earlier.

Is it a good time for investors to put money in banking funds? Hemant Rustagi, chief executive officer (CEO) of Wiseinvest Advisors, says, "Sectoral funds, such as in banking, should be opted by only experienced investors, who understand the risks and nuances. It is not advisable for general investors, no matter how attractive these look at the current stage. They should rather go for diversified equity funds which have a sizable exposure to the banking and financial sectors. Almost all good equity funds have 20-25 per cent exposure to financial services, good enough for investors."

Dhirendra Kumar, CEO of fund tracking firm Value Research, agrees. "Sectoral funds normally do well when the market is rising high. Diversified funds are better options for investors," he says.

Bigger schemes in the banking category — Reliance Banking Fund, ICICI Prudential Banking Financial Services Fund, Sundaram Financial Services Opportunities Fund, Birla Sun Life Banking and Financial Services Fund and UTI Banking Sector Fund — account for about 65 per cent of the total assets, Rs 4,400 crore.

Only two funds have a track record of over a decade, Reliance Banking and UTI Banking Sector. The former, biggest in the category with an asset size of Rs 2,057 crore, has shown a minus 12.8 per cent return in the past year. UTI Banking Sector's one-year return is minus 17.2 per cent, below the category average.

Birla Sun Life Banking and Financial Services Fund, a Rs 531-crore scheme, has done relatively far better, with minus 6.5 per cent return.