Can You Bank on ITI Banking and Financial Services Fund for Wealth Creation?

Nov 25, 2021

Listen to Can You Bank on ITI Banking and Financial Services Fund for Wealth Creation?

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New trends and new business models tend to offer attractive investment opportunities in the banking and financial services sector. One can participate in a multi-year secular growth opportunity as India's penetration across corporate and retail loans, insurance, investments and mutual funds is still low as compared to many emerging economies.

Traditional banking players are currently ready for growth as the corporate NPA problem is behind. Banks have strong capital position and credit growth is due for uptick. With greater awareness, increased reach and favourable policy measures, the Indian banking sector will see increased penetration.

In the past few years, digitization has led to massive growth in sectors like communication, banking and financial services with rise in Fintech companies. Post Covid-19 crisis, financial services sector has undergone widespread digitization at an accelerated pace.

Consequently, this segment has gained traction amongst investors and many of them are looking forward to invest in schemes that offer exposure towards banking and financial services space. Looking at the investors' sentiment ITI Mutual Fund (a new entrant in the Indian mutual fund industry) added a new fund called ITI Banking and Financial Services Fund to its sectoral funds basket. It is an open-ended equity scheme investing in Banking and Financial Services stocks.

On the launch of this fund, Mr George Heber Joseph, the Chief Executive Officer and Chief Investment Officer at ITI Mutual Fund, said, "Banking and Financial Services are well regulated in India and have witnessed uninterrupted growth over the last few years. The fund house is confident of offering a unique investment experience to its investors by adopting a diligent and research-backed investment process. The fund house follows the investment philosophy of SQL - Margin of Safety, Quality of the business and Low Leverage, offers a superior investment experience to its investors."

Table 1: Details of ITI Banking and Financial Services Fund

Type An open ended equity scheme investing in Banking and Financial Services Category Sectoral Fund
Investment Objective The investment objective of the scheme is to generate long-term capital appreciation from a portfolio that is invested predominantly in equity and equity related securities of companies engaged in banking and financial services. However, there can be no assurance that the investment objective of the scheme would be achieved.
Min. Investment Rs 5,000 and in multiples of Re 1 thereafter. Additional Purchase of Rs 1,000/- and in multiples of Re 1 thereafter. Face Value Rs 10/- per unit
Plans
  • Direct
  • Regular
Options
  • Growth
  • Dividend
Entry Load Not Applicable Exit Load
  • 1% if redeemed or switched out on or before completion of 12 months from the date of allotment of units;
  • Nil, if redeemed or switched out after completion of 12 months from the date of allotment of units.
Fund Manager - Mr Pradeep Gokhale
- Mr Pratibh Agarwal
- Ms Hetal Gada
Benchmark Index Nifty Financial Services Total Return Index
Issue Opens: November 15, 2021 Issue Closes: November 29, 2021
(Source: Scheme Information Document)
 

The investment strategy for ITI Banking and Financial Services Fund will be as follows:

ITI Banking and Financial Services Fund seeks to generate long term capital appreciation by predominantly investing in equity and equity related securities of companies engaged in Banking and Financial services. The scheme would invest in Banks as well as Non-Banking Financial Services companies, Insurance companies, Rating agencies, Broking companies, Microfinance companies, Housing Finance, Wealth Management firms, etc.

The scheme endeavours a flexicap strategy that aims to invest in stocks across market caps, which have strong growth. Allocation to both lending and non-lending sub segments of the banking and financial sectors, will have exposure to Banks, NBFCs, Insurance, AMCs, Brokers and other Capital Market Businesses.

The above statements are only indicative and the fund will look to invest in new and emerging areas of Financial Services. As a sectoral fund, the portfolio will concentrate on the companies engaged in Banking and Financial Services. The scheme endeavours to create a focused portfolio of 20-30 stocks that includes market leaders, fast growers and turnaround stories aiming to yield optimum returns.

About the benchmark

The NIFTY Financial Services Index tracks the performance of Indian financial services companies, including banks, housing finance, insurance, NBFCs, and other financial services companies. The index comprises a maximum of 20 stocks and a stock's weight is based on its free float market capitalization.

Under normal circumstances, the asset allocation will be as given below in the table:

Table 2: Asset Allocation for ITI Banking and Financial Services Fund

Instruments Indicative Allocation (% of net assets) Risk Profile
Minimum Maximum High/Medium/Low
Equity & Equity related securities of companies engaged in Banking and Financial Services 80 100 High
Equity and Equity related securities of other Companies 0 20 High
Listed Preference Shares 0 10 Medium to High
Debt and Money Market Instruments 0 20 Low to Medium
Units issued by REITs and InvITs 0 10 Medium to High
(Source: Scheme Information Document)
 

Who will manage ITI Banking and Financial Services Fund?

The ITI Banking and Financial Services Fund will be jointly managed by Mr Pradeep Gokhale and Mr Pratibh Agarwal, whereas Ms Hetal Gada will be the dedicated fund manager for overseas investments of the scheme.

Mr Pradeep Gokhale is a Senior Fund Manager at ITI Asset Management Limited. He is a CFA, CA and B.com graduate and has over 24 years of work experience in Fund Management, Equity Research, Credit Evaluation & ratings. Prior to this, he was associated as a Senior Fund Manager - Equities with Tata Asset Management Ltd.; he was Head of Financial Sector and Securitisation Ratings at CARE Ratings Ltd. He has also worked in corporate finance departments of companies like Bombay Dyeing, Tata International and Lubrizol India Ltd.

The other schemes Mr Gokhale manages are ITI Multi Cap Fund, ITI Long Term Equity Fund, ITI Balanced Advantage Fund, ITI Small Cap Fund, ITI Large Cap Fund, ITI Mid Cap Fund and ITI Pharma and Healthcare Fund.

Mr Pratibh Agarwal is a Fund Manager at ITI Asset Management Limited. He has over 11 years of work experience (7+ years in capital market) and his focus has been on fundamental research on investment ideas across various sectors and industries. His qualification includes Masters of Technology (IIT Kanpur). Prior to this, he has worked at Nippon India Asset Management as Research Associate, Yoctel Solutions Ltd. as Senior Consultant and with Alcatel Lucent Ltd as Engineer. Currently, Mr Agarwal does not manage any other schemes.

Ms Hetal Gada is a Fund Manager at ITI Asset Management Limited. Her qualification is MBA (Finance) and she has 7 years of work experience in Equity Research. Prior to this she was associated with Centrum where she handled research in auto and consumer sector, Elara Securities for 2 years and CRISIL for more than 3 years, both where she handled research on various sectors including metals. The other scheme Ms Gada manages are ITI Pharma and Healthcare Fund.

Fund Outlook - ITI Banking and Financial Services Fund

ITI Banking and Financial Services Fund aims to invest in securities of companies engaged in Banking and Financial services. The scheme provides an exposure to a large and growing sector directly linked to India's growth story which is Banking and Financial services.

The scheme endeavours to invest across the existing and evolving sub-sectors in the BFSI space. It may also take concentrated exposure to certain stocks based on conviction and lead to alpha creation.

The scheme endeavours allocation across Banks (Pvt and PSUs), NBFCs, Insurance, AMCs, Capital Market related business and Fintechs to provide diversification even in a sectoral strategy. The scheme follows benchmark & market cap agnostic strategy with strong bottom up stock picking.

However, do note that being a sectoral fund, it will follow a concentrated investment approach towards the banking and financial services sector. The performance of the scheme will depend on the performance of this particular sector, and may negatively affect the portfolio if the sector goes out of favour.

The fund may hold concentration risk and majority of its assets will be invested in direct equities, making it a highly risky proposition. Therefore, the scheme is suitable for investors who are aware and well-versed with the entry and exit in the sector and have a high risk appetite with a long investment horizon to sustain various market phases.

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Warm Regards,
Mitali Dhoke
Jr. Research Analyst

 

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