NFO Review: IDBI Mutual Fund launches scheme focused on BFSI sector IDBI Mutual Fund has launched Banking and Financial Services Fund, a scheme focused on BFSI sector. According to SEBI rules, the scheme will be required to invest 80-100% of its assets in the banking and financial services sector. It can invest the balance 0-20% in the stocks of other types of companies or in debt.

The scheme will be benchmarked against the Nifty Financial Services Index which is dominated by the HDFC twins (HDFC and HDFC bank). These two companies accounted for about 47% of the index on 30th April 2018. They are followed by ICICI Bank, Kotak Mahindra, SBI and Axis Bank. The holdings show a heavy private sector bank tilt. 

The scheme will be managed by Uma Venkatraman who also manages IDBI India Top 100, IDBI Small Cap and IDBI Equity Savings Fund. According to Value Research data as observed on 14th May, 2018, IDBI Top 100 has underperformed the Nifty 100 over the past five years. The performance lag against the index has accelerated over the past three and one years. IDBI Small Cap fund was launched less than a year ago in June 2017. It has delivered 9% since launch. IDBI Equity Savings Fund has underperformed by VR MIP index over the past five, three and one years. The three funds are rated, ‘three star’, ‘unrated’ and ‘one star’ by Value Research respectively.

RupeeIQ Take

Banking and finance have had a stellar run over the past five years. The Nifty Financial Services Index delivered a CAGR of 15.81% over the five years ending on 30th April 2018. One year returns were 17.76%, still high due to its private sector tilt. Banking sector funds have a five-year CAGR of 15.55% and a three-year CAGR of 13.10%. However, performance has dipped to just 9.18% over the past year, almost as if mean reverting to their 10-year average of 10.33%.

Sectoral funds are usually suitable only for sophisticated investors who can take exposure to a concentrated scheme portfolio. The above-mentioned data also shows that sectors move in cycles and the banking upcycle may not last forever. Private banks are also vulnerable to the NPA crisis raging through public sector banks as well as corporate governance issues. It is also unclear if IDBI Mutual Fund can deliver outperformance in this area.

Finally, investors should also note that banking is very popular among diversified equity funds and your existing funds may already count HDFC or HDFC bank among their top holdings.

Key Details

NFO Period: 14th May to 28th May

Minimum Investment: Rs 5,000

Benchmark: Nifty Financial Services (Total Return Index)

Fund Manager: Uma Venkatraman

Options: Growth, Dividend Payout, Dividend Sweep (Dividend transferred to another IDBI open-ended fund)

Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at