Why should you invest in Banking Sector Mutual Funds now?

Why should you invest in Banking Sector Mutual Funds nowLast week, I recommended to invest in Infrastructure mutual funds in India. This week, I am coming up with another set of sector based mutual funds which is banking sector mutual funds. There are several reasons why you should invest in banking sector mutual funds now to grow your money faster compared to equity funds. In this article, I would provide some insight about how the banking sector is expected to grow in future, risks involved and 3 promising banking and financial services sector mutual funds which you should invest in India now in 2014.

What are banking sector mutual funds?

If you are already familiar about this, skip this section. Mutual fund schemes that invests purely in banking stocks and financial services stocks are termed as banking sector mutual funds. They invest in a variety of stocks like SBI, ICICI Bank, HDFC, HDFC Bank, etc. which are in banking and financial services sector.

Also Read: How Infrastructure funds would help you to grow your money now?

Why banking sector is expected to grow in coming years?

There are several positive things happening in the last 6 months, which can boost the banking and financial services sector in the coming years.

Reason # 1: New Government focus on Infrastructure growth:

Like I indicated in my last week's article, new government is expected to put major focus on Infrastructure growth. While construction and Infra companies are going to be the direct beneficiaries of this, indirectly banking and financial services sector would get benefited with this move. The funds required for such Infra development would pass thru the banks/financial services sector. This would benefit the banking sector in next 3 to 5 years time.

Reason # 2: Banks performance improved:

Large banks have been performing well in terms of financials. Non-Performing Assets are under control. Under the tight controls from the RBI, the banking sector is going to perform well in the coming years.

Reason # 3: McKinsey expects good growth in next 6 years:

McKinsey, a global management consulting firm has released a report few months back about the banking sector. The report titled “Reimagining Banking in India”. This report indicates that by 2020, Indian Banking Sector will be shaped by a strong interplay between the external environment and actions by policy makers and banks. They have outlined three potential scenarios that might emerge as a result, and have qualitatively and quantitatively described the differences in inputs and outcomes. This report provides a positive outlook on banking sector in coming years.

Reason # 4: FDI in the banking sector could increase:

There are several requests to Govt. In India to increase FDI in the banking sector. This would help more inflow of funds to banks and such funds can be used for bank’s business growth.

Reason # 5: Experts say that banking sector may create 20Lakh new jobs:

There are several experts who are indicating that the banking sector can create 20L new jobs in next 5-10 years and 2014 would be starting point for that (Source: Thehindubusinessline). Unless there is business demand, such high employment sources may not be possible. This would indicate that the banking sector would continue to flourish for next few years.

Reason # 6: New Banking Licenses to boost banking sector:

RBI has issued new banking licenses recently, . These new banks are expected to tap new emerging markets and would do innovatively to enter the market. This raises hopes on the banking sector.

What are the risks involved in banking sector funds?

High Risk: Sector funds are always high risk investments. In case sector is in a downturn, you could see huge falls in your capital investment. You might be seeing such downturn in FMCG funds now.

Tighter controls of RBI: While it is good to have tight controls from RBI, some of the measures from RBI would not help the banks to grow. We have seen several instances in the past about RBI takes such measures time to time.

NPAs can increase in the future: Though Non Performing Assets (NPA’s) are under control now, any increase in defaulter of loans in the future can reduce the profits of the banks and financial services companies. We could see this clearly in 2007 Global Financial Crisis where defaulters increased drastically in US and several banks and financial services companies collapsed.

Also Read: Best Monthly Income Plan (MIP) Mutual funds to invest

3 Promising Banking Sector Mutual Funds to Invest now

Now, I would come to a final point about choosing best banking mutual funds in India. Based on past 5 years performance, Valueresearchonline rating, AUM, we have chosen 3 promising banking sector mutual funds which you can invest in India now. These banking mutual funds are expected to double your money in next 3 to 4 years or expected to provide 15%+ annualized returns in next 5 years.

Top 3 banking and financial services mutual funds

Conclusion: Banking sector outlook looks positive. There are several positive indicators to prove this. With the new government formation, some of these indicators are going to happen. I am positive about Banking Sector Mutual funds and planning to invest in such funds through SIP and expecting good returns in next 3 to 5 years time frame.

Happy investing in Banking Sector Mutual funds!!!

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Invest in Banking Sector Mutual Funds now

Suresh KP



    Hi Suresh sir.

    I am started investing from last month in the following MF’s for 10-15 yrs through SIP on monthly basis.

    1. Axis long term equity fund growth—monthly 1000
    2. Relaince small cap fund growth—-1000
    3. Sundaram select midcap fund growth-2000.

    And also planning to start investing monthly 1000 in HDFC Top 200 and lumpsum 50000 in Sundaram New Seventh Series.

    Please review and suggest is this best portfolio or not and shall I continue with the same or not.

  • Akshay

    Hi Suresh,

    Thanks once again for the wonderful article. My query is: Do the sector based mutual funds taxed in the same way as the equity mutual funds?

  • Kranthi Kiran

    Hi Suresh,

    Till date I don’t have any idea of mutual funds. I am 29 married and have a kid of one year.
    Till date I haven’t thought of investing in mutual funds. But I have LIC Jeevan anand policy of 8 lakhs.
    From the past four years I have been investing in this policy and it is for 21 years.
    I have kotak money back policy which is also 21 years and I have been investing this one for the past 3 years(15000 Per year).
    After new budget has released I started searching for other investment options.
    I found your blog very helpful in understanding of mutual funds.
    I know that I won’t get complete idea till I start investing in them. But I don’t want to mess up my money in investing bad funds.
    So I want your suggestion in planning further.
    Is it ok to continue with the current Policies?
    The current policies is occupying 5000 per month
    and EPF of 2100 is getting deducted every month.
    And from next April onwards i am Planing to invest 10000 per month(Apart from EPFO).
    Suggest me some suitable options to invest in best mutual funds.
    In the mean while I will gain some knowledge through your blog.


    • Hi Kranthi, Consider taking term insurance. Since you have only one LIC jeevan anand policy, you can stay and do not surrender. However don’t take any more ULIP or money back policies. Invest in other investment options like FD or mutual funds too

      • Kranthi Kiran

        Hi Suresh,

        Thanks for the reply.
        will it be better if i can invest the remaining amount in MF’s other than Lic or shall I divide the basket further for FD’s.

  • Bhakti

    Hi Suresh,

    Thinking of starting investing lumpsum in MFs for higher returns… Short and long term. Not sure if this is a right time to invest as Markets are trending upwards. or bank FD’s are a better option with a fixed 9% interest… thinking of below funds for MF’s:

    Birla frontline
    HDFC Midcap
    SBI magnum multiplier Scheme 93
    IPRU discovery
    Uti opportunities

    Please suggest

  • Vikram

    Need yr opinion on investing in the following funds all monthly sip for long term
    Icici tech fund
    Sbi fmcg fund
    Sbi pharma fund
    Icici banking and financial services fund
    Uti transport and logistics fund
    Reliance tax saver
    Icici focussed blue chip


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