IDBI Banking and Financial Services Fund (NFO) – Should you invest?

IDBI Banking and Financial Services Fund (NFO) - Should you investIDBI Banking and Financial Services Fund (NFO) – Should you invest?


PNB Fraud of Rs 14,000 Crores is still under investigation. RBI NPA provisioning is still hitting bank margins. Amidst this banking sector uncertainty, IDBI Mutual Fund is coming up with the New Fund Offer, IDBI Banking and Financial Services Mutual Fund Scheme. This new mutual fund scheme would tap the opportunities in banking and financial services sector. Should you invest in IDBI Banking and Financial Services Fund? What are the risk factors an investor need to consider before investing in this IDBI Banking and Financial Services New Fund Offer (NFO)?

Also Read: 10 Best Sector Mutual Funds to invest now

Features of IDBI Banking and Financial Services Fund


This is open ended mutual fund scheme which invests in equity and related instruments in banking and financial services sector.

This scheme opened from 14th May, 2018.

This scheme closed for subscription on 24th May, 2018.

It would reopen for further subscription from 8th June 2018.

This scheme is available in both regular and direct plans.

Like any other MF scheme, each such plan offers both dividend and growth options. Under the dividend option regular dividends would be paid.

This scheme is available for lump sum and SIP options.

Minimum investment is Rs 5,000 and in multiples of Rs 1,000 there-off for lump sum investments.

Minimum SIP investment is Rs 500 per month and minimum SIP tenure is 12 months.

The NAV of the NFO is Rs 10 per unit now during initial subscription.

There is an exit load of 1% if you withdraw the units before 1 year.

This scheme is classified as high risk scheme.

This scheme benchmark is NIFTY Financial Services Total Return Index.

Scheme expense ratio is estimated up to 2.5% of the total assets on any day.

Who is the Fund Manager for IDBI Banknig and Financial Services Fund NFO?


The Fund Manager is Uma Venkatramanan. She is associated with IDBI Mutual Funds since 2010. She was managing some of the top mutual funds like IDBI India Top 100 Equity Fund, IDBI Nifty Index Fund, IDBI Nifty Junior Index Fund, IDBI Small Cap Fund, IDBI Gold Fund, IDBI Monthly Income Plan etc.

What is the investment objective of this IDBI Banking and Financial Services Fund?


The scheme seeks to provide investors maximum growth opportunities and to achieve long term capital appreciation by predominantly investing in equity and equity related instruments of companies engaged in Banking and Financial Services Sector. This scheme invests 80% to 100% in equity & equity related instruments and 0% to 20% in debt & debt related instruments.

What is the allocation pattern in this mutual fund scheme?


This fund investment pattern looks as follows:

1) It invests 80% to 100% in equity and equity related instruments of companies engaged in banking and financial services sector.

2) It invests 0% to 20% in equity and equity related instruments of company’s engaged in other than banking and financial services sector.

3) It invests 0% to 20% in debt and money market instruments.

4) It invests 0% to 10% in REITS and InvITs.

Can NRI invest in this MF scheme?

Yes, they can invest in this scheme.

How is the Performance of Banking and Services Mutual Fund Schemes?


Currently there are already existing banking and financial services mutual funds, hence let us review how they are performing. This is not a comprehensive list, but some of the top performing funds in the last 3 – 5 years.

1) ICICI Pru Banking and Financial Services Fund: This fund gave 7% returns in the last 1 year, 17% annualized returns in the last 3 years and 21% returns in the last 5 years. If you would have invested Rs 1,000 per month through SIP for 3 years, your invested value would have been Rs 36,000 and your investment would have grown to Rs 50,000 now. The major underperformance in the last 1 year is due to banking stocks being hammed for PNB Fraud and Higher RBI Provisioning mandate.

2) Reliance Banking Fund: This fund gave 10% returns in the last 1 year, 14% annualized returns in the last 3 years and 17% returns in the last 5 years. If you would have invested Rs 1,000 per month through SIP for 3 years, your invested value would have been Rs 36,000 and your investment would have grown to Rs 49,000 now. The major underperformance in the last 1 year is due to banking stocks being hammed for PNB Fraud and Higher RBI Provisioning mandate.

3) Aditya Birla Sun Life Banking and Financial Services Fund: This fund gave 14% returns in the last 1 year and 19% annualized returns in the last 3 years. If you would have invested Rs 1,000 per month through SIP for 3 years, your invested value would have been Rs 36,000 and your investment would have grown to Rs 50,000 now. Good part is that this fund has managed under performance of banking stocks due to PNB Fraud/RBI Provisioning even in the last 1 year and able to get good returns.

4) SBI Banking and Financial Services Fund: This fund gave 17% returns in the last 1 year and 18% annualized returns in the last 3 years. If you would have invested Rs 1,000 per month through SIP for 3 years, your invested value would have been Rs 36,000 and your investment would have grown to Rs 51,000 now. Good part is that even this fund has managed under performance of banking stocks due to PNB Fraud/RBI Provisioning even in the last 1 year and able to get good returns.

5) Invesco India Financial Services Fund: This fund gave 16% returns in the last 1 year, 16% annualized returns in the last 3 years and 17% returns in the last 5 years. If you would have invested Rs 1,000 per month through SIP for 3 years, your invested value would have been Rs 36,000 and your investment would have grown to Rs 50,000 now. Good part is that even this fund has managed under performance of banking stocks due to PNB Fraud/RBI Provisioning even in the last 1 year and able to get good returns.

What are the risks involved in the banking sector fund?


One should consider some of these risk factors before investing.

1) This mutual fund scheme is a sector mutual fund scheme. Any sector fund is high risk as invests only in one particular sector.

2) PNB Fraud has made the banking sector as “not that favorable” sector. Hence investors may not invest in banking and financial services sector and this fund may not give good returns in the short term.

3) RBI Higher provisioning is hitting banking margins. This would create fewer opportunities for stock price appreciation; hence this fund may not give higher returns in the short to medium term.

4) This fund invests up to 20% in debt instruments. Certain debt instruments carry credit risk and there could be a downfall in such instrument ratings and values.

Also Read: Top Aggressive Mutual Funds to get higher returns

Should you invest in IDBI Banking and Financial Services Fund?


There are several Banking and Financial Services Mutual Fund Schemes already existing. Some of them are under performers due to PNB fraud and RBI Provisioning guidelines. Some of the new funds came in the last 3-4 years are still performing well in spite of these hurdles. Due to the current uncertainty in the banking sector, IDBI Banking and Financial Services Fund may not attract investors. One should think why to take a risk and invest in new funds when there are existing funds which would still struggle for a few more months. If you still want to take high risk, you can invest in such funds, otherwise, invest in some of the existing banking and financial sector funds indicated above.

IDBI Banking Fund New Fund Offer prospectus can be downloaded from here.

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Suresh

IDBI Banking and Financial Services Fund

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