DSP Mutual Fund has launched the DSP Banking & Financial Services Fund (DSP BFSF), a thematic equity fund investing in domestic and overseas banking and financial services companies. The fund aims to employ a “stock-specific” strategy with a high active share in select companies compared to its benchmark Nifty Financial Services TRI.
The NFO opened on November 20, 2023 and will close on December 4, 2023. The fund has no exit load, and the minimum investment amount is Rs 100. The expense ratio for the direct plan ranges from 0.5 to 1 per cent.
Commenting on the strong potential in the banking and financial services segment, Kalpen Parekh, MD & CEO of DSP Mutual Fund, in a press release on Monday, attributed the relatively large profits in the sector to the addition of diverse businesses across insurance, mutual funds, wealth management, tech, and fintech companies. “In recent years, stocks in the BFSI space have corrected, thus increasing the margin of safety for an investor,” Parekh said.
The fund house highlighted the segment’s consistent out-performance on the Nifty 50 Index across all 10-year periods despite its under-performance since September 2019. It said in the release that this under-performance, coupled with “reasonable valuations” and “robust balance sheets”, presents an opportunity for reversal. It added that the sector includes non-banking housing companies (NBFCs), housing finance, life and non-life insurance, AMCs, exchanges and depositories that beat India’s nominal GDP growth in the last 15 years.
The benchmark Nifty Financial Services TRI has yielded over 12 per cent returns in 90 per cent of instances over seven years, compared to 52 per cent for Nifty 50 TRI. Although BFSI contributes 38 per cent to the profit pool of India’s top 500 companies, its market cap represents just 26 per cent, thus offering room for growth, the fund house said.
Moreover, the BFSI sector recorded a 17 per cent profit growth over the last decade compared to 10 per cent for the top 500 companies, excluding BFSI. The strong bank balance sheet with lower nonperforming assets (NPAs) is another factor for robust performance. However, the fund house has cautioned investors about higher volatility and draw-downs in the fund compared to diversified equity funds.
DSP BFSF follows a stock-specific approach favoring business fundamentals over market outlook and attempts to have a high active share compared to the benchmark. It may also invest in fundamentally sound international businesses.
The fund's asset allocation would primarily target equity and equity-related securities in the banking and financial services sector (80-100 per cent), along with allocations to other companies (up to 20 per cent), debt instruments (up to 20 per cent), and units issued by REITs and InvITs (up to 10 per cent).