Nifty vs Nifty PSU Bank vs Nifty Private Bank: Time for Private Bank Index Funds/ETFs?

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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.

Nifty vs Nifty PSU Bank vs Nifty Private Bank: Time for Private Bank Index Funds/ETFs?

Nifty vs Nifty PSU Bank vs Nifty Private Bank: 7 years

Nifty vs Nifty PSU Bank vs Nifty Private Bank 7Y rolling returns and rolling risk

Nifty vs Nifty PSU Bank vs Nifty Private Bank: 5 years

Nifty vs Nifty PSU Bank vs Nifty Private Bank 5Y rolling returns and rolling risk

Nifty vs Nifty PSU Bank vs Nifty Private Bank: 3 years

Nifty vs Nifty PSU Bank vs Nifty Private Bank 3Y rolling returns and rolling risk


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

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 Fund0.75
Invesco India Financial Services Fund0.98
Tata Banking and Financial Services Fund0.99
ICICI Prudential Banking and Financial Services Fund1.16
Aditya Birla Sun Life Banking & Financial Services Fund1.29
Reliance Banking Fund1.38
UTI Banking and Financial Services Fund1.53
LIC MF Banking & Financial Services Fund1.58
SBI Banking & Financial Services Fund1.6
Taurus Banking & Financial Services Fund2.08
Sundaram Financial Services Opportunities Fund2.19
Baroda Banking and Financial Services Fund2.35

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.

Nifty Bank Index Top 10 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.


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  1. My unsolicited advice, stay away from sectoral funds/ETFs. Most of our funds would already have good exposure to HDFC, the current leader in Banking and that should be enough.

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