Mutual funds: 7 best performing banking & financial services funds

Foreign portfolio investors have shown significant interest in the financial services sector, as evident from NSDL data indicating a substantial influx of funds into this particular industry.

Abeer Ray
First Published26 Dec 2023, 02:38 PM IST
Availing of the benefits of investing in banking and financial services funds.
Availing of the benefits of investing in banking and financial services funds.

Large-cap bank stocks have failed to deliver the anticipated returns, experiencing negative performance in the current bullish market. Recent stringent government regulations have adversely affected numerous banking stocks. This downturn has sparked pessimism among large-cap investors seeking substantial gains in this sector. 

Despite these challenges, foreign institutional investors (FIIs) exhibited confidence by allocating more than half of their 42,700 crore investment solely to financial stocks during the initial two weeks of December.

Data from the National Securities Depository Limited (NSDL) website discloses that, as of December 15, 2023, the assets under custody (AUC) amounted to 19,41,167 crores. With investments at such elevated levels, the keen interest of FIIs in this sector becomes evident, indicating the growth potential. Not all investors engage in stock markets solely for monetary gains; some opt for mutual funds, relying on the expertise of seasoned fund managers.

Numerous mutual fund houses have introduced banking and financial services funds to leverage opportunities within the thematic category. While skeptics may dismiss the notion of investing in thematic funds, those willing to hold their investments for an extended period, such as a decade or more, stand to benefit from the periodic upswings in various sectors, including this one. Furthermore, recent government regulations governing the digital operations of this sector suggest a probable upsurge in the near future.

Banking and financial services funds have demonstrated satisfactory performance in the previous years. Prospective investors considering their inclusion in their investment portfolios can assess their 10-year historical returns to gauge past performance. While historical performance may not precisely predict future outcomes, the consistency exhibited by some of the premier mutual funds in this sector is noteworthy. These funds have not only outpaced inflation but have also delivered unexpectedly high yields in the past, enabling investors to amass substantial wealth over the long term.

Name of the banking and financial services fund

5-year returns 

(in %)

10-year returns

(in %)

Invesco India Financial Services Fund

16.61

19.10

Aditya Birla Sun Life Banking and Financial Services Fund

14.23

18.81

ICICI Prudential Banking and Financial Services Fund

13.07

18.40

Sundaram Financial Services Opportunities Fund

19.48

18.14

Nippon India Banking & Financial Services Fund

14.83

17.82

Taurus Banking and Financial Services Fund

14.97

15.69

UTI Banking and Financial Services Fund

11.80

14.99

Source: AMFI (As of December 25, 2023)

The financial services sector, experiencing the largest inflow of $5.9 billion in 2023, serves as a robust indicator of investor confidence. This implies that, despite prevailing market uncertainties, there exists substantial interest in the sector’s long-term growth potential.

Analysts’ anticipation of heightened FII interest in financial stocks, driven by the ongoing decline in the interest rate cycle, is well-founded. Lower interest rates typically result in elevated valuations for financial companies, rendering them more appealing to investors. This, in turn, may contribute to a further influx of capital into the sector.

The ongoing pre-election rally introduces an additional layer of optimism to the market. Any potential rate cut in 2024 could potentially amplify the rally, providing an extra boost to the financial sector.

The significant buying interest from FIIs in financial stocks serves as a positive signal for the broader Indian stock market. It indicates foreign investors’ confidence in the Indian economy and its financial system, potentially enhancing investor sentiment and attracting additional investments.

Patience is key if you’re considering investing in this theme.

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First Published:26 Dec 2023, 02:38 PM IST
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