DSP Mutual Fund launches DSP Nifty Bank Index Fund

DSP Nifty Bank Index Fund claims to offer an opportunity to invest in the 12 largest Indian Banking stocks which DSP MF says have entered into better valuations recently.
DSP Mutual Fund
DSP Mutual Fund

DSP Mutual Fund launched the DSP Nifty Bank Index Fund on May 15, 2024, an index fund scheme tracking the Nifty Bank Index. DSP Nifty Bank Index Fund offers investors an opportunity to invest in the 12 most liquid and large Indian banking stocks through a single fund. These stocks constituting the Nifty Bank Index constitute private and public sector banks. Like every index fund, this fund only tracks the benchmark index and there is no active fund manager participation. This makes index funds cheaper. The expense ratio of the direct plan variant of the DSP Nifty Bank Index Fund ranges from 0.2 per cent to 0.3 per cent.

NFO Details

The New Fund Offer for DSP Nifty Bank Index Fund runs from May 15 2024 to May 27, 2024. The minimum Application Amount for the first investment and also for any additional purchase is Rs. 100 and any amount thereafter. The minimum instalment amount for a Systematic Investment Plan (SIP) is also Rs. 100 and any amount thereafter.

There is no exit load involved in the scheme.

Investment Considerations

DSP Mutual Fund states that historically, the Nifty Bank Index has delivered higher long-term returns compared to the broader Nifty 50 Index. "Since January 2000, the Nifty Bank Index grew 67 times compared to the Nifty 50 which grew 21 times over the same period," the fund house said. As the Nifty Bank Index is going through its longest stretch of underperformance vis-a-vis Nifty 50 on a 5-year rolling basis, it is now relatively better placed in terms of sector valuations, the fund house said.

The current valuations are better placed compared to its historical averages and also to other sectors, the fund house claims

Further improved return ratios and capital adequacy ratios coupled with the Return on Assets (RoAs) of Indian banks tripling from the lows of 2018 offers scope for better returns. Historically low NPAs with the banking sector trading at just a 5 per cent premium to its 10-year average price-to-book multiple offer an attractive entry point for investors before the next resurgence in this sector, DSP Mutual Fund says. As per AMFI data, Nifty Bank TRI shows a return of 14.97 per cent in 3 years.

However, be mindful of possible headwinds shortly such as the end of the rate hike cycle putting pressure on the Net Interest Margin. Also because the index has only 12 stocks, there is a high stock-level concentration risk, which makes it more volatile to headwinds compared to other diversified equity funds.

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