SBI ETF Private Bank – Is this not riskier ETF?

SBI ETF Private Bank – Is this not riskier ETF - Review and Analysis

SBI ETF Private Bank – Is this not riskier ETF?


Banking sector is one of the evergreen sectors that has been outperforming in the last two decades. However, post covid-19 crisis, banking and financial stocks have been hammered.  While stock markets have returned to its pre-covid level, banking and financial stocks are yet to recover. This is due to the fear of high NPAs that would arise for banks due to shut down of several small to large business due to lock down. In this scenario, SBI mutual fund has come up with SBI ETF Private Bank that would open for subscription on October 6, 2020. In this article, we would provide SBI ETF Private Bank NFO issue details and also provide our view about this ETF.

Also Read: Which mutual funds are best for 5 years period?

What are Exchange Traded Funds (ETFs)?

ETFs are generally passively managed mutual fund schemes tracking a benchmark index and reflect the performance of that index. Bank ETF is where it tracks the NIFTY Bank Index.

Benefits of investing in an ETF

1) It tracks the index underlying stocks.

2) It has a low expense ratio as fund manager would invest in the underlying stocks

SBI ETF Private Bank – Issue details

This is an open-ended Exchange Traded Fund tracking Private Bank Index.

This ETF would open for subscription on October 6, 2020.

This scheme would close for subscription on October 13, 2020.

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

There is no entry load to invest in this mutual fund scheme.

There is no exit load for this scheme.

This ETF scheme is classified as HIGH-risk scheme.

These ETF units would be traded on BSE/NSE like any other stock.

Fund Manager is Mr. Harsh Sethi

Benchmark for this ETF is Nifty Private Bank TRI.

Download SBI ETF Private Bank KIM SID (draft).

What does NIFTY Bank Index contain?

It contains 10 stocks from the private banking sector. Here are the stocks that are part of this index along with its weightage.

SBI ETF Private Bank - NIFTY Private Bank Index components

Who can invest in this mutual fund scheme?

Any of the following can invest in this scheme in this scheme.

1) Resident Individuals

2) Resident Indian Nationals, including partnership forms, companies, Banks, HUFs, Sole Proprietorship etc.,

3) NRI’s

4) Foreign Portfolio Investors

What is the allocation pattern in this ETF?

Here is how the scheme would invest:

1) It would invest 95% to 100% in securities that are part of NIFTY Private Bank Index. This would fall under medium to high risk profile.

2) It would invest up to 5% in debt securities and money market instruments. This would fall under low risk profile.

Why to invest in SBI ETF Private Bank?

Here are a few reasons to invest in this ETF.

1) Exchange Traded Funds would reflect underlying Index performance. If you think that private banking index would perform better in the coming years, you can just go and invest in this ETF.

2) The NIFTY Private bank Index has outperformed in the last 15-20 years. It is expected to continue to grow in future too. Even comparing to NIFTY 50 or NIFTY Bank Index, NIFTY Private Bank Index has outperformed consistently.

3) ETFs comes with low expense ratio. Your returns would be higher in this case.

Some key risk factors you should consider before you invest in such ETFs

One should consider some of these risk factors / negative factors before investing.

1) Due to covid-19 crisis, many small to medium businesses have collapsed and many are yet to revive. There could be increase in loan defaults and dramatic increase in NPAs of the banks. This would put pressure on the private banks.

2) Investing in this Bank ETF is like investing in single sector i.e. banking sector. If the banking sector is in down trend, it would reflect in this index too.

3) If the banking sector crisis across the globe that happened in 2008 is repeated again, it can wash away your investment in this fund.

How is the Performance of NIFTY Private Bank Index?

Let us quickly check how this index performed in the last 20 years.

NIFTY Private Bank ETF Index Performance 2005-2020

How is the Private Bank ETFs Performance in India?

Currently there are two existing private banking ETFs which are less than 5 years old (where we generally compare > 5 years), anyways let us look at the performance of these schemes.

Private Banking ETFs Performance 2020

Also Read: Which investment option gives high returns for me?

Should you invest in the SBI ETF Private Bank?

SBI ETF Private Bank invests in NIFTY Private Bank Index i.e. it would invest in the underlying private bank stocks of this index. The NIFTY Privte Bank Index has been outperforming in the last two decades. However, the trend might get affected due to covid pandemic where several businesses have either shut down or in the process of shutting down. Loan defaults are expected to increase in coming quarters as moratoriums in the last 6 months have helped such businesses. This uncertainty would continue till the virus vaccine is found. On other side, currently private banking index is available at 30% lower level compared to pre-covid level. If you are a high risk investor and willing to invest for long term of 8-10 years, you can invest in such private bank ETFs. In the short to medium term we do not know how banking industry would perform, hence one should not expect any high returns. Alternatively, you can invest in some of the best banking mutual funds which can provide higher returns compared to such ETFs in medium to long term.

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Suresh KP

4 comments

  • Jagan

    In comparision – Private banks are far better than PSU banks. Esp – the Top 10.

    The index is at low level – I’m looking at 3-5 years of investment in the sector. Buy on lows and add to the portfolio.

    Expense ratio is something we need to take a look, if its less than 0.20%, I’m happy to go in.

  • R Ramakrishna

    Well said.One should have guts to invest in an ETF that its peers returned negative returns of over 23% in the last one year.After all one can’t throw one’s money into the Bay of Bengal or the Ganges.

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