Banking funds as the name suggests refers to a mutual fund engaged in making investments related to the financial sector with special focus on the banking sector. Such a fund would be described as a thematic or sectoral fund due to its high exposure to the banking sector. This high exposure may act as a double-edged sword, namely, if the banking sector is performing well, then, the fund will perform well and the fund will perform poorly if the banking/financial sector is facing a challenging time. This makes a sectoral or thematic fund significantly riskier than the run of the mill diversified equity fund. Moreover, these sectoral funds tend to invest in company equities of organisations operating in the financial and allied sectors, hence diversification of the portfolio is done a bit differently. For starters, these mutual funds would feature a market cap agnostic style of investment i.e. the fund would invest in the fund irrespective of whether it is a small cap, mid cap or large cap company. Additionally, a smaller portion of the fund’s portfolio would consist of debt funds, money market instruments as well as derivates, cash/call options etc.
Reliance Banking Fund is among the premier equity mutual fund offerings from the Reliance Nippon Life Asset Management Company popularly known as Reliance Mutual Funds AMC. A major portion of the Reliance Banking Fund would be invested in equities as well as equity-related investments of companies that are involved in India’s banking and financial sector. The key aim of this mutual fund would be to provide long-term capital appreciation to the investors. In order to achieve this objective, the Reliance Banking Fund would be engaged in equity as well as equity-related securities of companies that are engaged in banking as well as various banking sector-allied activities.
Reliance Banking Fund- investment Strategy
The Reliance Banking Fund would feature an investment strategy designed to maximize the capital appreciation for the investor over the medium to long term. The key strategic considerations to achieve this objective include:
- Reliance Banking Fund is a mutual fund that will focus on investing in equities and equity-linked schemes of various financial institutions including banks.
- The fund would be involved in making investments in various companies in the chosen sector irrespective of their market capitalization i.e. small, middle and large cap.
- In order to support the diversification of the portfolio and thereby create a balance between risk and returns, some of leading sub-segments for investment include broking houses, housing finance companies, Non-Banking Financial Companies, Public Sector Units and private banks.
- This mutual fund is also expected to follow a strategy of active fund management so as to generate superior alpha values and help the fund reach its capital appreciation target.
- An additional strategy to aid in the alpha generation of the mutual fund includes tactical allocation of capital across a range of differentiated investment ideas and sub-segments.
- Thus the key features of the fund management strategy in case of Reliance Banking Fund is to attempt a reduction in risk of the fund’s investments through diverse investments while retaining the mutual fund’s potential to generate high alpha values.
Taxation Rules of Reliance Banking Fund
The Reliance Banking Fund is an equity mutual fund and hence in the purview of the short-term capital gains taxation rules. As per existing taxation norms, the Reliance Banking Fund is subjected to short-term capital gains taxation rules in case the units of the fund are redeemed prior to completion of 1 year from the date of allocation of the mutual fund units. The existing applicable tax rate on short-term capital gains of equity mutual funds such as the Reliance Banking Fund is 15%. Any dividends earned from equity mutual funds are tax-free. In case the units of Reliance Banking Fund have been held for over 12 months before being redeemed, the proceeds thus obtained by the investor are tax-free.
Key Facts and Features of the Reliance Banking Fund
The following is a list of the key facts and features of the Reliance Banking Fund offered by Reliance Mutual Fund AMC.
Fund Inception: The Reliance Banking Fund was first opened for investment on the 26th of May 2003, thus the fund features a track record of good performance for a period in excess of 10 years.
Fund Type: The Reliance Banking Fund is an open-ended equity scheme belonging to the thematic subtype. Thus, an investor who can complete SEBI-mandated investment criteria can start investing in the fund or exit from the fund at a time of their choice through exit load may apply as per the fund’s criteria as mentioned in the scheme documents. Being a thematic fund focused on banking, the Reliance Banking Fund will have a high degree of exposure to the banking and banking-allied sector of the Indian economy.
Minimum Investment: The minimum lump sum investment amount for investing in this scheme is fixed at Rs. 5000 and higher lump sum investment amounts would be in multiples of Re. 1 over Rs. 5000. In the case of SIP investments, the minimum value of a single SIP for Reliance Banking Fund would be fixed at Rs. 500 per months and the minimum SIP tenure for a SIP of Rs. 500 is 12 months. Higher SIP amounts and longer investment tenures may also be supported.
Entry Load: As per SEBI’s circular and mandate, no exit loads can be charged in case new/additional investment being made into a mutual fund scheme and the Reliance Banking Fund adheres to this criterion.
Exit Load: The mutual fund features an exit load of 1% in case units of the Reliance Banking Fund are redeemed or switched out within 1 year i.e. 12 months of allotment. In case the units are held beyond the 12 month period, no exit load is applicable in case the investor redeems or switches out his/her investments in the Reliance Banking Fund.
Risk Label: Being an equity mutual fund which features a high correlation to stock market movements, the risk index of the Reliance Banking Fund is high, to begin with. Moreover, being a banking fund this investment option would have a high degree of exposure to the financial sector and any changes in the status of the sector would cause a significant change in the NAV of the fund. As a result of a combination of these factors, the Reliance Banking Fund is considered to be a high-risk investment option.
The current fund manager for the Reliance Banking Fund is Shrey Loonker who has more than 12 years of experience in India’s financial market. He has been working with Reliance Nippon Life Asset Management Limited, earlier known as Reliance Capital Asset Management Limited for the past 10 years. His areas of expertise include fund management and equity research. Before he joined Reliance Mutual Funds AMC, he operated as a consultant with Ernst and Young, India.
Plans and Options Available with Reliance Banking Fund
Direct Plan: This investment option is available for investors seeking to make an investment in the Reliance Banking Fund directly through the Reliance Mutual Fund AMC. The direct plan is preferred by DIY investors as this variant has a lower expense ratio as compared to the regular plans on offer for investors. As a result, units of the direct plan have a higher NAV at the time of buying as well as the time of redemption, making them more lucrative investment options. Options available to an investor seeking to make direct investments in the Reliance Banking Fund include dividend (payout/reinvest) and growth.
Regular Plan: An investor using the services of a 3rd party brokerage or Reliance Mutual Fund AMC (Asset Management Company) can opt to invest in the regular plan of the Reliance Banking Fund. However, unlike Paisabazaar.com, many brokerages and broking firms charge fees with respect to portfolio management, etc. However, regular plans feature a lower NAV due to the higher expense ratio and also have a larger AUM than direct plans, which makes it a popular choice among certain investor groups. Options available in case of the regular plan of Reliance Banking Fund include growth and dividend options.
Dividend Option: The dividend option can be opted for by investors of both the regular and the direct plans. The dividend option is further subdivided into dividend re-invest and dividend payout. Dividends are declared at the discretion of the fund management team and only when there are profits that can be shared with the investors. The dividends are distributed in two ways – direct deposit into the investor’s bank account also known as dividend payout or in the form of additional units equal in value to the dividend earned also known as dividend re-invest. In both cases, the amount of dividend received by an investor is based on the number of units of the mutual fund held. Moreover, the NAV of each fund unit decreases by a value equal to the amount declared as the dividend.
Growth Option: The growth option works a bit differently as compared to the dividend option of the Reliance Banking Fund. In case the mutual fund makes a profit, these profits are added to the AUM of the existing fund instead of being paid out, which leads to an increase in the NAV (Net Asset Value) of the mutual fund. The increase in NAV ensures that the investment becomes more valuable with the passage of time as the fund enhances its profitability. In the case of an ongoing investment, the growth option does not yield any apparent benefits, while the investor stays invested in the fund. The benefits become apparent only when the investor redeems or switches out of the existing scheme. The growth option is thus preferred by investors seeking capital appreciation in the medium to long term as part of their investment strategy.
Leading Investments of the Reliance Banking Fund
The Reliance Banking Fund as the name suggests is focused on making an investment in companies that are involved in banking or with allied financial services. The following are some top investments made by the Reliance Banking Fund as of 31st March 2017*:
|Top Holdings||Assets %|
|State Bank of India||9.64%|
|ICICI Prudential Life Insurance Co. Ltd.||2.52%|
|Bank of Baroda||2.37%|
|Power Finance Corporation||2.23%|
|Max Financial Services||1.88%|
|Edelweiss Financial Services||1.71%|
|GIC Housing Finance||1.70%|
|Indiabulls Housing Finance||1.18%|
|Karur Vysya Bank||0.95%|
|Cholamandalam Investments and Finance||0.76%|
|Credit Analysis and Research||0.61%|
|Larsen & Toubro Finance Holdings||0.58%|
*This list of holdings is illustrative, not exhaustive and is subject to change depending on the fund’s requirements/ changes in SEBI regulations.
How to Invest in Reliance Banking Fund through Paisabazaar.com
Paisabazaar.com can be your one-stop shop for making mutual fund investments including the Reliance Banking Fund online. A prospective investor can easily sign up for a free investment account as long as he/she can complete the KYC criteria as mandated by the Securities and Exchange Board of India (SEBI). Once an individual has signed into the Paisabazaar.com online investment platform, he/she can easily check all available mutual fund options from Reliance Mutual Fund AMC that are available through the platform. The investor can compare the performance of various funds of Reliance Mutual Fund AMC that are available and also use other criteria such as AUM and current NAV to make their decision.
On choosing the Reliance Banking Fund from among the available investment options, the investor can check additional features of the fund such as risk category, minimum investment amount, etc. before choosing to make the investment. Payments on the Paisabazaar.com platform can be processed using bank ECS mandate or through Netbanking interface of a leading Indian bank. Subsequently, units are allocated based on the applicable NAV and these are made available through the Paisabazaar.com investment account dashboard interface.