Will Banking and Financial Services Funds Improve in 2025?
Banking and financial services mutual funds did not perform well in 2024, with an average return of about 11.28%. There were 18 funds active in this sector at the same time.
Of the 18 funds, 11 funds offered strong returns. The Invesco India Financial Services Fund has provided a return of 19.62% in 2024, followed by the SBI Banking & Financial Services Fund, which offered a return of 19.12%, respectively.
In 2024, Bandhan Financial Services Fund delivered a return of 18.31%, and DSP Banking & Financial Services Fund offered a return of 15.68%. Pharma and healthcare sector-based funds delivered the highest average return of 40.03%. There are many mutual fund categories that offer returns of up to 40% in 2024. Mid-cap funds gave an average return of 28.84% in the same period.
Small-cap funds have shown an average return of up to 26.38%, followed by large & mid-cap funds, which give an average return of 23.48%. Large-cap funds offered an average return of 15.09%, while MNC funds offered an average return of 13.01%.
With equity mutual fund categories providing returns of up to 40% in 2024 and the bank & financial services showing slow performance, mutual fund experts recommend that long-term investors focus on specific BFSI funds that have the potential for better returns. Experts suggest investing in parts over time to lower the risk and take advantage of future growth opportunities.
Let’s take a look at how these schemes performed over the years. The bank and financial services fund delivered an average loss of 0.50% in 2020. In 2021, the fund showed a return of 13.22%, and in 2022 and 2023, these funds saw average returns of 13.22%, 14.97%, and 20.87%, respectively. The performance went down, with an average return of just 11.28% in 2024.
A top head of the investment company said, “The recent Cash Reserve Ratio (CRR) cut by the RBI has provided some liquidity relief, and further rate cuts may follow in 2025. From the first half of 2025, the market outlook suggests a rate cut of 25 symbolic basis points (bps). That can happen, especially when inflation peaks and economic growth is seen at a reduction point. In short, BFSI funds may witness pressure on the NIMs due to the structure of borrowing. However, rural recovery initiatives by the government to support lenders and house buyers are likely to positively impact the sector. A rate cut would most likely give an upward sentiment and boost demand for credit.”
