Home >Money >Calculators >Product crack: SBI Banking and Financial Services Fund

SBI Funds Management Pvt. Ltd has launched a new scheme called SBI Banking and Financial Services Fund (SBFS). This is a thematic fund and is open-ended.


SBFS will invest in stocks of banks, housing finance companies, small and payments banks (as and when they get launched and listed) and other financial services companies. It will invest in both government-owned and private sector companies, as well as in firms across market capitalizations. Its benchmark index, CNX Finance Index, has about 70% weightage to banks and remaining 30% to financial companies.


The fund’s fortunes will depend on how the banking and financial services sectors perform. This is both good and bad; depends on where we are in an economic cycle. For the past year-and-a-half, there has been positive news on the economy front. With projects looking to get unclogged and as companies aim to better utilize their idle capacities, borrowings will increase. As the economy improves and demand for vehicles, especially commercial improves, vehicle financing is also expected to pick up. If the economy improves the way experts are expecting, credit growth pick-up is also expected to increase.


Being a sectoral fund, it is risky as it is less diversified than diversified equity funds. Its benchmark index has only 15 stocks. Being a thematic fund, expect it to have concentrated holdings.

Also, the ripples created by the economic slowdown that began in 2008, are still being felt. The 40 listed Indian banks added 24,024 crore of gross non-performing assets during the quarter-ended December 2014. This was the second highest, quarter-on-quarter, addition since March 2010 after the record 28,363 crore seen during the quarter ended June 2013. Much of these are restructured loans that have gone bad. Economic recovery, although widely expected, may take time to materialize. SBFS, though, has the option to diversify across private and government-owned banks, as well as other financial services companies.


Mutual funds have increased their allocation to banks and financial services companies over the past two years, in anticipation of an economic recovery. For instance, large- and mid-cap funds have increased their allocation to 31% as on December 2014, up from 27% as on 2012-end. That’s the highest allocation to any sector as on December 2014. The sector is in for a good run, but the timing will depend on the bad assets problem getting sorted, amidst few other things. This is a sectoral fund whose fortunes depend on just banks and similar firms. It’s best to stick to diversified funds unless you can stomach the risks that come with sectoral funds.

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