SBI Banking and Financial Services Fund

An open-ended equity scheme with the primary objective of investing in equities of companies engaged in the banking and financial services.

Summary

Type	An open-ended sector fund.	Benchmark Index	CNX Finance Index
Min. Investment: Additional purchase:	Lump sum -> Rs 5,000 and in multiples of Re 1 thereafter *Systematic Investment Plan: -> A minimum of Rs 1,000 and in multiples of Re 1 thereafter can be invested every month for six months / Rs 500 every month for a year / Rs 1,500 and in multiples of Re 1 thereafter per quarter for at least one year by indicating in the application form or by issuing advance instructions to the registrars at any time * SIP facility not available during NFO period Rs 1,000 and in multiples of Re 1 thereafter	Plans: Options (under each plan):	Direct; and Regular   Growth; and Dividend (Re-investment and Payout)
Face Value	Rs 10 per unit	Expense Ratio:	Upto 2.50%
Entry Load	Nil	Exit Load:	For exit within 12 months from the date of allotment -> 2.00% For exit after 12 months but within 18 months from the date of allotment -> 1.00% For exit after 18 months from the date of allotment -> Nil
Issue Opens	February 11, 2015	Issue Closes:	February 24, 2015

Investment Objective*

The investment objective of the scheme is to generate long-term capital appreciation to unit holders 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 will be realized.

*Source: Scheme Information Document

Is this fund for you?

SBI Banking & Financial Services Fund (SBFSF) is as an open-ended sector fund with the primary investment objective of investing primarily in equity and equity related securities of companies engaged in Banking and Financial Services. As per the investment mandate the scheme will invest in banks and Non-Banking Financial Companies (NBFCs), insurance companies, rating agencies, brokerage houses, wealth management companies, housing finance companies, stock exchanges, commodities exchanges, etc. Hence SBFSF is positioned as thematic fund aiming to capitalise on opportunities in the banking & financial services domain.

In the on-going bull phase, banking and financial stocks have witnessed a significant rally. Fund managers have greatly increased their exposure in banking stocks and in many cases the banking and financial sector constitutes more than 20% of the equity assets of mutual funds. The banking sector is generally considered as a proxy play on economic development of a country.

But is it really worthy betting on the banking & financial services theme?
Well, banks have been facing problems on the asset quality front. In simple words, banks are facing problems in recovering loans and interest due from the borrowers. Along with lapse in the risk management process, tough economic conditions and higher interest rates is also responsible for poor quality of assets of Indian banks. Until a few quarters ago, it was believed that, as the economy would recover, problem of Non-Performing Assets (NPAs) may become less serious. But latest quarterly results suggest that the worst may not be over just yet. Banks are finding it difficult even to recover restructured loans and many of the restructured loans have started turning bad. Also what is terrifying is, despite renegotiated terms restructuring of loans is not working for banks. Priority and infra sectors are the biggest sources of stressed assets. Developments such as cancellation of licences of captive coal mines and non-availability of gas and coal for power plants pose an even bigger threat to already stressed banking sector as borrowers are feeling the heat. In this the public sector banks are affected more than their private sector counterparts. Nevertheless, there are a few banks which have a good track record in containing NPAs with vigilant risk management in place.

Credit growth which had fallen to an all-time low of 9.8% in the fortnight ended September 2014 has only now started to pick up. The pickup is mainly due to working capital loan disbursals as project loan sanctions. Term loan disbursals continue to be muted and any substantial revival in credit growth can only be seen two quarters away.

Amid such times, portfolio construction can be a challenging task, especially as most stocks in the theme have already witnessed a run-up. However in the spectrum of financial services there are opportunities which further may appear luring in time to come. Nevertheless, in the backdrop of the above, SBFSF is likely to be exposed to very high risk.

Portfolio Strategy

The Scheme aims to maximize long-term capital appreciation by investing primarily in equity and equity related securities of companies engaged in Banking and Financial services. Financial services companies are firms that are engaged in providing non-banking financial services to customers. The classification of financial service companies will be largely guided by AMFI sector classification. The indicative list of industry under financial services includes:
 

• Housing Finance
• Micro Finance
• Stock broking & Allied
• Wealth Management
• Rating Agencies
• Asset Management Companies
• Insurance Companies
• Stock/ Commodities Exchange
• Other NBFC's
• Any other company which may derive 70% or more of its revenue from companies engaged in financial services
   

So, that's how overall the Scheme holds a mandate to invest in both banks as well as financial Services companies. While investing, SBFSF willl adopt an active management style to optimize returns and follow a top-down approach to investing.

The asset allocation which will be followed by the fund will be as under:
 

Instruments	Allocation Range (%)		Risk Profile High/Medium/Low
	Minimum	Maximum
Equity & Equity related securities of companies engaged in banking & financial services.	80	100	High
Debt and Money Market instruments	0	20	Low to medium

Notes: *Exposure to derivatives may be to the extent of 50% of the net assets.
Cumulative gross exposure through debt, equity & derivative position shall not exceed 100% of the net assets of the Scheme.
Exposure to securitized debt may be to the extent of 20% of the net assets.
The Scheme shall not invest in ADR/ GDR/ foreign securities/Foreign securitized debt.
The Scheme shall not invest in repo in corporate debt.
The Scheme shall not engage in short selling and securities lending

(Source: Scheme Information Document)

SBFSF will benchmark its performance to the CNX Finance Index, since its composition broadly represents the scheme's investment universe.

Fund Manager Profile

SBFSF will be managed by Ms Sohini Andani, who holds more than 16 years of experience in the area of financial services. By qualifications, she is a commerce graduate (B.Com) and is a Chartered Accountant (CA). Prior to joining SBI Funds Management Pvt. Ltd. Ms Sohini was with ING Investment Management Pvt. Ltd., where she worked as Senior Analyst and was responsible for contributing to Fund Managers and the CIO on their equity investments. Before that she worked with many organizations viz: ASK Raymond James & Associates Pvt. Ltd., LKP Shares & Securities Ltd., Advani Share Brokers Pvt. Ltd. CRISIL, K R Choksey Shares & Securities Pvt. Ltd. handling primarily equity research responsibilities

Presently, at SBI Mutual Funds she manages SBI Blue Chip Fund and SBI Magnum MidCap Fund.

Fund Outlook

The funds outlook will hinged on the economic growth amid which how the banking and financial services sector performs will be deciding factor in the fortune of the fund. As cited earlier, since banks are saddled with rising NPA problems and restructuring of loans too not honing well; on the banking side portfolio construction would be challenging task. While few others banks have controlled their NPAs, valuations have run-up quite ahead. Nonetheless, on the financial services side there are opportunities, which further may appear luring in time to come. As the RBI reduces policy rates further in time to come (if macroeconomic variable are conducive to do so) it would be positive for the banking & financial services sector, which is rather interest sensitive. And possibly, this is one of the reasons why fund managers are increasing their exposure in banking and financial services stocks. They're betting that a combination of reducing interest rates, growth in the economy and a reduction in non-performing assets will contribute to increasing profit margins as we see a revival in credit growth from decade lows. Nevertheless, the fortune of the fund will be closely linked to the performance of the banking & financial services sector.

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