The Hindu Business Line : Higher returns from banking funds

SECTORAL funds are sizzling, outperforming their diversified counterparts, a trend that has lately been strengthened by the show put up by funds that exclusively invest in the banking sector.

Reliance MF's banking fund is leading the pack with a one-year return of over 38 per cent.

The performance rides on the back of prices of select banking stocks in recent times, including major ones such as State Bank of India.

The NAVs of the funds in question have moved ahead in tandem.

In fact, Reliance Banking Fund, which currently has an NAV of more than Rs 22, had reached a high of Rs 24.71 some time ago .

Pharma funds and FMCG funds have as on January 24 provided one-year average returns of 27.79 per cent and 26.5 per cent, according to figures worked out by Value Research.

Reliance MF, which also runs three other schemes committed to power, pharma and media/entertainment, claims that it is bullish on the sector, especially because credit take-off has shown clear signs of improving on the back of increasing capital expenditure.

The Government too has signalled further liberal reforms for the banking industry, it is pointed out.

December, as the MF has mentioned in its latest fact-sheet, was a good month for banks, particularly the private-sector players.

Reliance Banking Fund has made use of what it has called the "sharp rise" in some of its holdings in order to record profits. It has also proposed to apply its cash position to utilise declines in prices.

The sector has not seen too many schemes dedicated to it, fund circles suggest, adding that areas such as IT and pharma have drawn many more players in comparison.

In fact, while the first IT fund can be traced back to early 1999, banking sector funds are of recent origin. Reliance Banking Fund was flagged off in May 2003, and UTI MF joined the league with its own product much later when it launched thematic funds.

Reliance Banking Fund is currently invested in scrips such as SBI, Allahabad Bank and Andhra Bank — the three top holdings in end-December 2003, which together account for 32 per cent of the portfolio.

For UTI Banking Sector Fund, which has given about 15 per cent return since inception, the top holdings include SBI, ICICI and Corporation Bank.

Its NAV on January 24 stood at Rs 11.53. Of these, SBI has moved up from a level of about Rs 430 recorded six months ago to its present position of Rs 570 or so.

The last six months have seen significant movements in stocks like Allahabad Bank, HDFC Bank, Corporation Bank, Federal Bank, Bank of Punjab and Centurion Bank.

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