Mirae Asset Banking and Financial Services Fund NFO – Should You Invest?

Kumar Shankar Roy   /   December 3, 2020
Mirae Asset Banking and Financial Services Fund

Mirae Asset Mutual Fund has unveiled Mirae Asset Banking and Financial Services Fund, an open-ended equity scheme investing in Banking & Financial Services Sector shares. This is a sector oriented fund. This is a New Fund Offer (NFO). Investors can get NFO units at Rs 10 per unit if they apply between November 25 to December 4. From December 14 onwards, the price of the mutual fund scheme’s units will be based on market movement of its portfolio. Banking and Financial Services sector is one of the most important in the Indian market. Read on to know more.

Why banking and financial services 

Banking and Financial Services sector is one of the most important in the Indian market. In an economy with fast-growing potential, Banking and Financial Services is the major growth driver. The sector as a whole gives a lot of opportunity to buy different businesses. Also, the runway for growth is fairly good given the low penetration of the sector’s segments.

How is the sector doing

There are many Banking and Financial Services funds. A cursory glance will tell you that as a sector Banking and Financial Services has faced some pressure due to the cascading effect of Covid-induced pandemic. As a result, Banking and Financial Services funds are not chart-toppers like they once were. In the last 1-year period, this category of funds has fallen 9.3%, which is the 2nd worst (the worst are PSU funds). In the 3-year time period, Banking and Financial Services funds are the 4th worst. 

Some investment experts feel this period of under-performance for Banking and Financial Services funds allows them to rebound when the Indian economy recovers.  

Do note that all banking and financial services companies are not good even though RBI/IRDA/SEBI regulates them. Just in the case of the banking sector, over the 1-2 years we have seen listed banks like YES Bank, Lakshmi Vilas Bank on the verge of bankruptcy and ultimately a bail-out was given to save depositors’ money. Shareholders in such businesses suffer the most. So, selecting the right stock is very important.  

Where will the fund invest 

Mirae Asset Banking and Financial Services Fund aims to build a portfolio that is invested predominantly in equity and equity related securities of companies engaged in the banking and financial services sector.

As per rules, the fund has to invest a minimum of 80% in Equity and equity related instruments in the Banking and Financial Services Sector.

The fund has the flexibility to invest across market capitalization (largecap, midcap, smallcap). There is no restriction as such. 

Our understanding is that the fund will be growth-oriented in terms of selecting stocks. These stocks can include Banks, Non-Banking Finance Companies (NBFCs), Housing Finance Companies (HFCs), Broking and Securities, Stock Exchanges, Depositories, Asset Management Companies (AMCs), Insurance Companies, Credit Card and payment gateway, Digital Financial Institutes, Investment companies and rating agencies etc.

How the fund will invest

The focus would be to build a portfolio of strong growth companies, reflecting Mirae Assets’ most attractive investment ideas at all points of time. 

The fund manager does have the flexibility to follow a focussed approach on the investments. In doing so, he will try to avoid liquidity risk.

The fund-house says the fund manager will monitor the trading volumes in a particular stock before investment to avoid liquidity risk.

Other fund details

Minimum NFO investment amount – Rs 5000 

Minimum NFO SIP investment amount – Rs 1000 per application 

Plans available – Regular Plan and Direct Plan

Options available – Growth Option and Dividend Option (Payout & Re-investment)

Fund manager – Harshad Borawake & Gaurav Kochar

NFO unit allotment date – December 11

Benchmark index for fund – NIFTY Financial Services index

Exit load – 1% if switched or redeemed within 1 year from date of allotment. No exit load if switched or redeemed after 1 year from date of allotment.

NFO Verdict

There are many Banking and Financial Services funds. Since these funds are concentrated on one sector, they tend to show similar tendencies over time. The Banking and Financial Services sector swings more than the market over time. Consequently, a fund investing in the sector will also move more than the market on both sides (up or down). The returns of the funds can be volatile and even negative depending on market conditions.  

You should consider investing in a Banking and Financial Services fund if you have at least 5 years.

Do understand that during these 5 years or more time, your principal will be at high risk due to the nature of the Banking and Financial Services sector. 

If you already have invested in equity mutual funds, you can take extra exposure (5-10%) to sectoral funds.

If you are a first-time investor, avoid sectoral funds.

Do not base your investment decision on the past performance.

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