Sector or theme-based funds do not perform well. Will L&T Banking & Financial Services Fund be an exception?
With expectations of 20%-22% credit growth in the coming years on the back of the finance ministry’s expectations of 8.5% plus GDP growth in 2010-11, L&T Mutual Fund is planning to launch a new fund called ‘L&T Banking and Financial Services Fund’. It filed its draft offer document for launching the open-ended fund on 17 June 2010. The scheme will invest in companies which operate in the banking and financial services sector and also in companies providing services to these companies.
Benchmarked against the CNX Bank Index, the fund carries 1% exit load if redeemed before one year. The fund may also invest up to 35% in sectors falling outside the purview of banking and financial services. The performance of sector funds has been a mixed bag. There are 48 sector funds in existence of which there are seven equity banking and financial sector funds. Out of these, four have outperformed their benchmarks while three have underperformed.
Among the funds which underperformed their benchmarks are Religare Banking Fund, JM Financial Services Sector Fund, and ICICI Prudential Banking and Financial Services Fund. Not surprisingly, JM Financial Services Sector Fund has been the worst performer in this category. The fund has posted 0% NAV return since its inception in 2006. Moreover, its benchmark ‘BSE Finance’ is not available in the public domain. Sahara Banking and Financial Services Fund has been the top performer in this category which posted 77% NAV return against its benchmark CNX Bank Nifty which yielded 30.14% returns since the inception of the fund.
The fact remains that asset management companies always have a tendency to launch sector funds when a sector has already performed well and investor interest is running high. However, by the time the sector fund is launched, the stock is usually at its multi-year high. The probability of such sectors continuing their momentum in the future is uncertain. Moneylife had previously carried a detailed study on the best and worst performing sector funds. (Read here: http://www.moneylife.in/article/81/2044.html). L&T Mutual Fund has 19 schemes in its kitty, acquired from DBS Cholamandalam Asset Management which L&T Asset Management took over.
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