Banking funds have done better than other equity MFs: Should you invest?

Banking sector funds have performed better than other equity mutual funds in the recent past. The one-month category average return of these funds is 5.7 per cent, and three-month is 13.4 per cent. The rally in the banking sector is fuelled by the hope that the worst is behind for public sector banks (PSBs). 

After the recent fourth-quarter results, analysts are expecting big PSBs, like the State Bank of India, to turn profitable during the current financial year. Don't get lured by the returns. Avoid taking too much exposure to banking sector funds as they tend to be volatile. Keep only three-five per cent of your equity portfolio in a sector scheme as your existing diversified funds would have exposure to the best stocks in that sector.