Which Banking Mutual Funds Should You Invest In 2025?

A favorite of the Investors as well as the Government, the banking sector in India is among the fastest growing sectors. Naturally, this tends to make the banking sector funds a growing prospect for the Investors.

Decoding Banking & Finance Sector Mutual Funds

The Funds whose inception by the AMC is carried out with an investment objective of investing a majority of their funds in the Banking and Financial Services sector are termed as ‘Banking & Finance Funds’. It’s basically a Sector Fund focused on investing their assets in Securities from the Banking and/or Financial Services segment.

Growth in Banking Sector Deposits

During FY06–17, deposits grew at a CAGR of 12.03 percent and reached 1.54 trillion by FY17. Strong growth in savings in rising disposable income levels are the major factors influencing this deposit growth.

“Deposits under Pradhan Mantri Jan Dhan Yojana (PMJDY) have also amplified extensively. As of November 9, 2016, US$ 6,971.68 million were deposited and 255.1 million accounts were opened. The PMJDY is among the biggest boosters to the Indian Banking Sector.”

India’s banking sector has remained steady despite global mayhems, thereby retaining public confidence over the years.

What is backing the sector and what will boost it?

One of the key constraints for the growth story is the sluggishness in private investment, having tumbled from 29.8 percent to 28.9 percent of GDP in the 2nd quarter of 2017-18 (constant prices).

However, in the last year, the government has been fixated on creating an enabling atmosphere for the private investment to recover. For example, the proposed bank recapitalization program should increase growth in Public Sector Bank (PSB) lending.

Also, over the past few years, it has been observed that the Bank credit had been slowing owing to the difficulty of non-performing assets (NPAs). However, data from the Reserve Bank of India enlightened us on the fact that the outstanding bank credit grew by 9.6 percent year-on-year (YoY) in November 2017 after growing at 7.1 percent, 6.5 per cent and 6.2 percent in the previous months. Looking at data on the sectorial deployment of bank credit, one finds that credit growth to micro and small industries has picked up in the months of August, September and October 2017, having declined continuously between March and July 2017.

While credit growth in private banks has been growing at a healthy rate, the growth rates for PSBs were much lower. With the proposed reforms, we should see PSBs’ credit beginning to grow too in the coming years.

Furthermore, with the recently passed Insolvency and Bankruptcy Code and the proposed Financial Resolution and Deposit Insurance (FRDI) Bill, speedy resolutions of NPAs should free up space in PSB balance sheets for fresh lending.

Our Rationale:

We are very bullish on the banking sector mutual funds as we see for any country’s economy the banking sector’s performance is the backbone. It will result to the development of the country especially in the case where the government is also supporting the sector.

So, this will be a win-win situation for any investor if they get any opportunity to participate in this sector’s funds.

Our Recommendation to Invest in Best 5 Banking Mutual Funds

1. ICICI Prudential Banking and Financial Services Growth

2. Aditya Birla Sun Life Banking And Financial Services Fund Growth

3. Tata Banking and Financial Services Fund Growth

4. SBI Banking & Financial Services Fund Growth

5. Reliance Banking Fund Growth