Bandhan MF (erstwhile IDFC Mutual Funds) has recently announced the launch of their new fund, the Financial Services Fund NFO. Starting from 10th July 2023, this mutual fund scheme aims to attract investors by focusing on companies within the thriving financial services sector. With the financial services sector maintaining its status as an evergreen industry over the past decade, this fund presents an opportunity for investors to capitalize on the sector's potential. By strategically investing in a diverse range of financial services companies, the Financial Services Fund NFO aims to provide investors with the potential for long-term growth and returns in this lucrative sector.
Investment objective of this MF scheme?
The primary objective of the Financial Services Fund NFO is to generate long-term capital appreciation for investors. This will be achieved by predominantly investing in equity and equity-related instruments of companies operating within the financial services sector. By strategically allocating funds to these companies, the scheme aims to take advantage of the growth potential and opportunities presented by the financial services industry.
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Fund Allocation: -
Why to invest in this NFO?
The Financial Services Fund NFO focuses on investing in a diverse range of companies operating within the banking, financial services, NBFC, insurance, broking, microfinance, housing, wealth management, and related sectors. This strategic investment approach is based on the observation of consistent growth in this segment over the past few years. India, in particular, offers a significant opportunity compared to the global economy. For instance, life insurance penetration in India stands at 3%, while in the top ten penetrated countries, it exceeds 10%. Similarly, the number of bank branches per 1,000 population in India is at 15%, compared to the developed countries' average of 27%. With the banking sector maintaining its evergreen status over the past decade and valuations of banks aligning with long-term averages, there is considerable potential for growth. Additionally, the growing working population in India is expected to drive demand in the financial services sector, further enhancing the investment prospects of the Financial Services Fund NFO.
Risk factors in such funds
Before investing in the Financial Services Fund, it is important to consider several risk factors that may affect the fund's performance:
1) Sector Concentration: Since this fund focuses solely on the financial services sector, any decline in this particular industry can have a significant impact on the fund's performance. It is important to note that sector funds can experience periods of both outperformance and underperformance in the short term.
2) Non-Performing Assets (NPAs): An increase in NPAs can adversely affect banks and NBFCs, which are prominent investments in this fund. High NPAs can lead to a decline in share prices of these companies, thus impacting the overall performance of the fund.
3) Impact of Pandemics: Pandemics can result in a surge in insurance claims, which can negatively affect the performance of insurance companies held within the fund. It is important to consider the potential implications of such events on the financial services sector.
4) Fintech Investment Risks: Investing in fintech companies carries inherent risks. Recent times have witnessed significant losses for investors in certain prominent fintech companies like Paytm, Nykaa, and Zomato. The volatile nature of the fintech sector should be considered when evaluating the potential risks of this fund.
5) Detailed Risk Factors: To gain a comprehensive understanding of the risks involved in investing in this scheme, it is recommended to refer to the Scheme Information Document (SID), Key Information Memorandum (KIM), or the NFO prospectus. These documents provide in-depth information on specific risk factors associated with the fund.
Considering these risk factors is crucial in making an informed investment decision and understanding the potential challenges that may impact the performance of the Financial Services Fund. It is advisable to carefully evaluate the risks and consult with a financial advisor before making any investment.
Performance of existing financial services Funds
Here is the performance of some financial services funds. This would give an idea to investors on how these funds have performed in medium to long term. Returns indicated here are annualized returns.
Should you invest in this fund?
While the banking and financial services sector has shown consistent performance over the past decade, it's important to weigh the associated risks. This mutual fund's exclusive focus on a single sector increases the vulnerability to any downturns in that industry. Additionally, the recent decline in share prices of fintech companies raises concerns about overvaluations. Investors with a high-risk appetite and an interest in exploring BFSI mutual funds may consider investing in this fund for the medium to long term. Alternatively, those seeking a more established track record across various market cycles may opt for well-established banking and financial services mutual funds. It's always advisable to consult with a financial advisor before making any investment decisions. If you found this article helpful, we appreciate if you could share it on your social media platforms as it would be a special gift to our blog.
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*Investors should consult their financial advisors if in doubt about whether the product is suitable for them
Note: The above information has been sourced from the Scheme Information Document provided by Bandhan Asset Management. Read the entire document before investing, Disclaimer: Jaiprakash (ARN/Distributor - 70524; brand name Vasundhra Investment) is the distributor of the mutual fund. Please consult your investment advisor before investing
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
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