Rising demand for Thematic and sectoral funds

Mutual Fund participation in India is increasing steadily if we go by the latest AMFI data. As much as 6% of the household savings is parked in the mutual funds by individuals if we go by the ‘Indian Household Savings RBI Data 2023’.

The thematic funds and the sectoral funds as a category have been attracting regular inflows on a month on month basis according to the AMFI data for July, August and September month. In fact, according to the AMFI data for September the Thematic category saw inflows of Rs 3146.85 crore, highest in the equity category.

Banking sectoral funds are also popular with investors. Banking sectoral fund allows investors to participate in the India growth story by betting on the banking sector. In the past ten years when BSE Sensex has gone up by ~203% BSE Bankex is up by 282% indicating the long term outperformance of the Banking sector, as per BSE website. Microfinance companies and Fintech companies are seen providing growth impetus to the overall banking sector which can be tapped via banking sectoral funds by the investors. 

Sectoral fund investing is for very high risk appetite investors as the portfolio is concentrated in a particular sector. Only a well-informed investor should park funds in the sectoral funds. Year after year we have seen that the Banks have delivered higher growth in profits compared to several other sectors. Even in the recent quarters the above estimated performance in the private banks in terms of earnings growth reflects the overall health of the banking system in India. Banking sector is central to the India growth story and is one sector that tends to benefit the most when the GDP grows. The enhanced spending on infrastructure, speedy implementation of projects and continuation of reforms are expected to help the banking sector grow exponentially. The rapidly growing businesses are expected to turn to banks for their credit needs even as the advancement in technology is helping banks to become efficient incrementally. 

The Tata Banking and Financial Services Fund is a sectoral fund that takes exposure in Banks, NBFCs and MFIs. The fund also holds a private sector general insurance company.

 According to Amey Sathe, Fund Manager, Tata Asset Management, “The Indian economy stands at a critical juncture of its evolution. There are expectations of rapid growth, inclusive growth, wealth creation, and trickle down of wealth, plenty of jobs, better living standards, quality infrastructure & access to basic banking facilities. We see the consumer lending space in India as a huge opportunity for the organized lenders (banks & NBFCs). Unlike in the past, the coming round of growth will likely be driven by multiple engines as Banks/NBFCs have developed diverse product lines (including multiplicity of secured lending options). Along with lending, we think non – lending space like life insurance, general insurance and asset management businesses are seeing business buoyancy and penetration levels remain low compared to other developed/developing countries. Overall valuation of BFSI space is reasonable / attractive and that augurs well from investors’ perspective. We believe that select BFSI companies will be able to leverage their expertise & established market positions to grow their retail loan books faster than the market expectations. As far as stock picking goes for the Tata Banking and Financial Services Fund – we follow a Growth At Reasonable Price (GARP) investment philosophy with blend of growth as well as value stocks.”