19% returns in three months; is it time to bet on banking sector mutual funds?

Banking sector mutual funds have become the hot topic to ponder upon in the last few days. The schemes of this sector have been providing extraordinary returns in the short term period. The gains have been recorded at 6.09% for one month period, 19.17% for three months, and 15.43% for one year. The toppers have recorded a high of 23% in the returns for the one years as well three months period, and thus the investors are baffled whether it is the right time to invest or not?

The competition for the private banking sector has improved with NBFCs becoming weak, and PSUs are struggling. Even the fund managers have been stating that the banking sector conditions have certainly improved in the last one year and with the return of the Modi Government, the sentiment has undoubtedly improved giving these funds an inevitable push in the market. The BSE bank index has risen by 1360 points since the return of the BJP government at the center. However, fund managers feel that the momentum is unlikely to continue since these funds were already at a high.

The RBI has proposed introducing a liquidity coverage ratio for large NBFCs to tackle the liquidity problems which the fund managers believe will continue to frighten the sector in the coming months.

Jimmy Patel CEO of Quantum Mutual Fund, says that the sector has been performing exceptionally well, but issues are lying underneath the carpet which needs to be addressed. The PSUs are still struggling and the NPA issue is still not entirely over for many banks, there are investments in housing finance companies, NBFCs, etc. which will hit the banks when the lending process from the banks starts again.

The fund managers still believe that the sector can be rewarding to the investors who are willing to take the risk despite the issues lying on the table and the private sector banks sector is going to enjoy a reasonable period for the next two to three years because of the weak competition. Though it may be volatile, the industry will remain positive for the next few years.


Alongside, the advice for retail investors remains the same that they should not invest if they are not willing to take the risk.