Last Updated on December 29, 2021 at 12:59 pm
The importance of the banking sector in providing stability and growth to an economy is something that even a non-expert can intuitively understand. Among their many roles, the one most relevant for an investor is funding both trade, enterprise, businesses and consumerism. We recently discussed MNC Funds as an alternative to large cap fund. So I wanted to find out how well banking indices have fared against Nifty 50 and ended up realising that it is time for private bank ETFs.
Even before we consider any results, two aspects of banks should be reasonably clear. (1) Compared to Nifty, the banking index would be a guaranteed high-risk with a potential high reward option. (2) More importantly, we still have PSU banks or banks where the government holds the major stake. And we know that PSU banks have been suffering due to rising non-performing assets. With this background let us dive straight into the rolling returns and rolling risk for four indices: Nifty, Nifty Bank, Nifty PSU Bank, Nifty Private Bank.
Update: We have two of them now: one from ICICI and one from TATA. Thanks to the @TheWokeIndian2 on Twitter
Nifty vs Nifty PSU Bank vs Nifty Private Bank: 7 years
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email! 🔥Enjoy massive discounts on our robo-advisory tool & courses! 🔥
Nifty vs Nifty PSU Bank vs Nifty Private Bank: 5 years
Nifty vs Nifty PSU Bank vs Nifty Private Bank: 3 years
Impression
Notice how Nifty Private Bank has consistently outperformed both NIfty 50 and Nifty Bank. Also, notice how the risk associated with PSU banks has significantly shot up recently. Although Nifty Private Bank Index is more volatile than Nifty, it has provided superior returns more often than not. This data underlines the needs for a Private Bank ETF or Index funds.
List of Banking Mutual Funds
Notice that there are two PSU ETFs, but not private bank index based index fund or ETF. Notice also that the expense ratios are pretty steep! This includes direct plans as well (see below). Source: Value Research (as on April 2019)
Fund (DIRECT Plans) | Expense Ratio (%) |
IDBI Banking & Financial Services Fund | 0.75 |
Invesco India Financial Services Fund | 0.98 |
Tata Banking and Financial Services Fund | 0.99 |
ICICI Prudential Banking and Financial Services Fund | 1.16 |
Aditya Birla Sun Life Banking & Financial Services Fund | 1.29 |
Reliance Banking Fund | 1.38 |
UTI Banking and Financial Services Fund | 1.53 |
LIC MF Banking & Financial Services Fund | 1.58 |
SBI Banking & Financial Services Fund | 1.6 |
Taurus Banking & Financial Services Fund | 2.08 |
Sundaram Financial Services Opportunities Fund | 2.19 |
Baroda Banking and Financial Services Fund | 2.35 |
Can the Nifty Bank be used instead of Nifty Private Bank Index?
The Nifty Bank is only a bit less rewarding than the Nifty Private Bank Index because is dominated by Private Banks. See the current top 10/12 stocks.
Who can invest in Nifty Bank or Nifty Private Bank Indices?
Now, that is a troublesome question! Clearly, it is not for everyone. Clearly, it is not a replacement for large caps as the risk is much higher. It can work for someone with a higher risk digestive capacity (not just appetite), but the exposure has to be significant to make a difference. Want to dig deeper into this? Then check out Kotak Banking ETF Fund with an impressive 7000+ crore AUM. Find out its trading volumes, price NAV differential etc. It would be nice if someone comes up with a smart beta private bank index/ETF or stock basket and back-test it.
Warning: I have written this article as a curious analyst and not as an interested investor. I would suggest that you also read it in the same vein.
🔥Enjoy massive discounts on our courses, robo-advisory tool and exclusive investor circle! 🔥& join our community of 5000+ users!
Use our Robo-advisory Tool for a start-to-finish financial plan! ⇐ More than 1,000 investors and advisors use this!
New Tool! => Track your mutual funds and stock investments with this Google Sheet!
We also publish monthly equity mutual funds, debt and hybrid mutual funds, index funds and ETF screeners and momentum, low-volatility stock screeners.
Podcast: Let's Get RICH With PATTU! Every single Indian CAN grow their wealth! You can watch podcast episodes on the OfSpin Media Friends YouTube Channel. 🔥Now Watch Let's Get Rich With Pattu தமிழில் (in Tamil)! 🔥
- Do you have a comment about the above article? Reach out to us on Twitter: @freefincal or @pattufreefincal
- Have a question? Subscribe to our newsletter using the form below.
- Hit 'reply' to any email from us! We do not offer personalized investment advice. We can write a detailed article without mentioning your name if you have a generic question.
Join over 32,000 readers and get free money management solutions delivered to your inbox! Subscribe to get posts via email!
About The Author
Dr M. Pattabiraman(PhD) is the founder, managing editor and primary author of freefincal. He is an associate professor at the Indian Institute of Technology, Madras. He has over ten years of experience publishing news analysis, research and financial product development. Connect with him via Twitter(X), Linkedin, or YouTube. Pattabiraman has co-authored three print books: (1) You can be rich too with goal-based investing (CNBC TV18) for DIY investors. (2) Gamechanger for young earners. (3) Chinchu Gets a Superpower! for kids. He has also written seven other free e-books on various money management topics. He is a patron and co-founder of “Fee-only India,” an organisation promoting unbiased, commission-free investment advice.Our flagship course! Learn to manage your portfolio like a pro to achieve your goals regardless of market conditions! ⇐ More than 3,000 investors and advisors are part of our exclusive community! Get clarity on how to plan for your goals and achieve the necessary corpus no matter the market condition is!! Watch the first lecture for free! One-time payment! No recurring fees! Life-long access to videos! Reduce fear, uncertainty and doubt while investing! Learn how to plan for your goals before and after retirement with confidence.
Our new course! Increase your income by getting people to pay for your skills! ⇐ More than 700 salaried employees, entrepreneurs and financial advisors are part of our exclusive community! Learn how to get people to pay for your skills! Whether you are a professional or small business owner who wants more clients via online visibility or a salaried person wanting a side income or passive income, we will show you how to achieve this by showcasing your skills and building a community that trusts and pays you! (watch 1st lecture for free). One-time payment! No recurring fees! Life-long access to videos!
Our new book for kids: “Chinchu Gets a Superpower!” is now available! Most investor problems can be traced to a lack of informed decision-making. We made bad decisions and money mistakes when we started earning and spent years undoing these mistakes. Why should our children go through the same pain? What is this book about? As parents, what would it be if we had to groom one ability in our children that is key not only to money management and investing but to any aspect of life? My answer: Sound Decision Making. So, in this book, we meet Chinchu, who is about to turn 10. What he wants for his birthday and how his parents plan for it, as well as teaching him several key ideas of decision-making and money management, is the narrative. What readers say!
Must-read book even for adults! This is something that every parent should teach their kids right from their young age. The importance of money management and decision making based on their wants and needs. Very nicely written in simple terms. - Arun.Buy the book: Chinchu gets a superpower for your child!
How to profit from content writing: Our new ebook is for those interested in getting side income via content writing. It is available at a 50% discount for Rs. 500 only!
Do you want to check if the market is overvalued or undervalued? Use our market valuation tool (it will work with any index!), or get the Tactical Buy/Sell timing tool!
We publish monthly mutual fund screeners and momentum, low-volatility stock screeners.
About freefincal & its content policy. Freefincal is a News Media Organization dedicated to providing original analysis, reports, reviews and insights on mutual funds, stocks, investing, retirement and personal finance developments. We do so without conflict of interest and bias. Follow us on Google News. Freefincal serves more than three million readers a year (5 million page views) with articles based only on factual information and detailed analysis by its authors. All statements made will be verified with credible and knowledgeable sources before publication. Freefincal does not publish paid articles, promotions, PR, satire or opinions without data. All opinions will be inferences backed by verifiable, reproducible evidence/data. Contact information: letters {at} freefincal {dot} com (sponsored posts or paid collaborations will not be entertained)
Connect with us on social media
- Twitter @freefincal
- Subscribe to our YouTube Videos
- Posts feed via Feedburner.
Our publications
You Can Be Rich Too with Goal-Based Investing
Published by CNBC TV18, this book is meant to help you ask the right questions and seek the correct answers, and since it comes with nine online calculators, you can also create custom solutions for your lifestyle! Get it now.Gamechanger: Forget Startups, Join Corporate & Still Live the Rich Life You Want This book is meant for young earners to get their basics right from day one! It will also help you travel to exotic places at a low cost! Get it or gift it to a young earner.
Your Ultimate Guide to Travel
This is an in-depth dive into vacation planning, finding cheap flights, budget accommodation, what to do when travelling, and how travelling slowly is better financially and psychologically, with links to the web pages and hand-holding at every step. Get the pdf for Rs 300 (instant download)