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HDFC Mutual Fund has launched a new sector fund, HDFC Banking & Financial Services Fund. The new fund offer period closes on June 25. Given that banking and financial services companies are poised to outperform the country’s economic growth, should you invest in this rookie fund? Here are details to help you decide.

Sector importance

Banking and financial services is closely linked to the Indian GDP. The sector has grown at a faster pace than the domestic economy (nominal GDP) over the past two decades. This is reflected in the rising share of financial services in India’s total market capitalisation of stocks. The BFSI sector has out-performed most sectors in the stock market over various time periods.

The investible universe of the sector comprises over 100 listed stocks. It is well spread out in terms of m-cap spectrum with 30 large-cap stocks, 30 mid-caps and about 50 small-caps.

The low penetration of BFSI is the main reason for being bullish on this space.

Is the pain over?

BFSI sector has seen tough times even a few months ago amid the raging Covid pandemic. However, there are signs that those times are a thing of the past.

One, GDP growth is expected to bottom out.
Two, economic activity is expected to pick up normal signs.
Three, as the industrial capex cycle revives, lending should improve.
Four, insurance sector benefits from increased awareness because of the pandemic.
Five, the NPAs, which have hit the banking space over the years, are not getting out of hand at this moment. Poor asset quality cycle is behind us.
Six, many new BFSI companies are getting listed and offer interesting wealth creation opportunities.

What is HDFC Banking & Financial Services Fund

This is an actively managed sector fund. It has a multicap strategy, which allows freedom to invest across the m-cap spectrum.

The fund will focus on leaders. It aims to sharpen its sights on diversification and maintain low correlation.

The stock picking strategy will prefer secular growth stories or where re-rating is on the cards.

Benchmark – Nifty Financial Services TRI, which is a 20-stock portfolio

Fund manager – Anand Laddha

Investment plans – Direct and Regular

Options – Growth and IDCW variants

Minimum application amount – Rs 5,000

Exit load – 1 per cent if redeemed within 1 year

Who should invest

Any investor willing to take a concentrated bet on the BFSI sector can invest in this fund. Your existing portfolio will give you some exposure, but a sector fund adds zing to it. Do note that the entry and exit become very important for sector plays, as it is important to ride the up cycle and get out when the down cycle begins. Hence, active asset management can boost returns more than a pure sector index fund or sector ETF. Of course, there are over 20 BFSI sector funds existing in the market. If you want to bet on a new fund, the new offering from HDFC MF can be considered.