Kotak MF has launched Banking & Financial Services Fund (new fund offer). This NFO would open for subscription on 6th February, 2023. This mutual fund scheme would invest majorly in companies that are from the banking and financial services sector. This sector has been ever green sector over the decade. Should you invest in Kotak Banking & Financial Services Fund NFO? What are the various risk factors associated with such funds?
Also Read: Top 5 Largecap Funds to invest in 2023
Kotak Banking & Financial Services Fund (NFO) – Issue details
Here are the NFO issue details.
| Scheme Opens | 06-Feb-23 |
| Scheme Closes | 20-Feb-23 |
| Scheme reopens for continuous purchase/sale | Within 5 working days |
| Minimum Lumpsum | Rs 5,000 |
| Minimum SIP | Rs 500 for 10 months |
| NAV of the fund | Rs 10 during NFO period |
| Entry Load | Nil |
| Exit Load | For units in excess of 10% of the investment,1% will be charged for redemption within 365 days |
| Risk | Very High Risk |
| Benchmark | NIFTY Financial Services TRI |
| Fund Manager | Shibani Kurian (Equity) Abhishek Bisen (Debt) |
| Max TER | 2.25% |
Kotak Banking & Financial Services Fund SID
What is the investment objective of this MF scheme?
The investment objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services sector.
There is no assurance or guarantee that the investment objective of the scheme will be realized.
Where does the scheme invest?
Below is the allocation strategy of the fund.
| Type of instruments | Min % | Max % | Risk Profile |
|---|---|---|---|
| Equity and Equity Related Securities of companies engaged in Banking and Financial Services Sector | 80% | 100% | Very high |
| Equity and Equity Related Securities of companies other than those engaged in banking & financial services | 0% | 20% | Very high |
| Overseas Mutual Funds schemes / ETFs / Foreign Securities | 0% | 20% | Very high |
| Debt and Money Market Securities | 0% | 20% | Low to moderate |
| Units issued by REITs and InvITs | 0% | 10% | Very high |
Performance of existing Banking & Financial Services Funds
Here is the performance of existing funds from this sector.
| Scheme Name | 3 Yrs | 5 Yrs | 10 Yrs |
|---|---|---|---|
| ICICI Prudential Banking and Financial Services Fund | 10.9% | 8.7% | 15.7% |
| Invesco India Financial Services Fund | 10.7% | 10.1% | 14.5% |
| Nippon India Banking & Financial Services Fund | 13.2% | 8.6% | 13.2% |
| Sundaram Financial Services Opportunities Fund | 13.5% | 11.1% | 12.8% |
| Taurus Banking & Financial Services Fund | 11.3% | 11.6% | 11.9% |
| UTI Banking and Financial Services Fund | 9.6% | 5.8% | 10.9% |
| Baroda BNP Paribas Banking and Financial Services Fund | 8.1% | 8.6% | 10.7% |
Why to invest in Kotak Banking & Financial Services Fund NFO?
This fund invests in companies that are part of banking, financial services, NBFC, Insurance, Broking, Fintech and AMCs. We could see consistent growth in this segment for the past few years.
There is a potential opportunity lies in India compared to the global economy. As an example, Life Insurance constitutes 3%, whereas in top 10 penetrated countries it is over 10%. Bank branches per 1,000 population is at 15% compared to developed countries average of 27%.
The banking sector has been ever green sector over the decade. Banks valuations close to long period averages.
There is growing working population which can drive demand in this sector.
Risk factors in such funds
One should consider some of these risk factors / negative factors before investing.
1) Since this fund invests only in a single sector, it is classified as a sector fund. Any down trend in this segment can impact the mutual fund performance.
2) Increase in NPAs can impact the performance of the banks and NBFCs.
3) Pandemics can have high insurance claims that can impact insurance companies’ performance.
4) There is high risk of investing in fintech companies. As an example, Paytm, Nykaa, Zomato heavily eroded investors’ money in the recent times.
5) You can refer complete risk factors of investing in this scheme to SID / KIM / NFO prospectus.
Also Read: Mutual Funds with highest SIP returns in last 10 years
Kotak Banking & Financial Services Fund NFO – Should you invest?
This mutual fund invests in banking and financial services sector i.e. banking, NBFCs, fintech companies, insurance companies etc., If we put aside fintech companies, this sector has been evergreen over the decade. This sector mutual fund has generated between 11% to 16% annualized returns in the last 10 years.
On the other hand, this mutual fund invests in single sector and high risk. Any down trend in this sector in coming years can impact the fund performance. Even fintech companies’ share prices have crashed owing to over valuations.
High risk investors who want to test with new BFSI mutual funds, can invest in such funds for the medium to long term. Alternatively, one can invest in existing banking and financial services mutual funds that have proven their track record in various market cycles.
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