One of the main purposes of investing in mutual funds is that they reduce risk through diversification in their portfolio. However sector funds defeat this purpose by investing in only one particular sector, thereby exposing investors to a greater level of risk. Furthermore, sector funds are normally high risk - high return investment propositions that may not adequately compensate investors for the risk that they have undertaken.
Religare Banking Fund (RBF) is one such fund from the stable of Religare Mutual Fund, which proposes to invest in banking and financial services sector. It is an open ended fund launched in July, 2008.
The primary investment objective is "to generate long term capital growth from a portfolio of equity and equity related securities of companies engaged in the business of banking and financial services". The scheme is mandated to invest 65% - 100% of its assets in equity and equity related instruments of the constituents of CNX bank index, upto 35% in equity and equity related instruments of banking and financial services companies other than the constituents of CNX Bank index and the rest (i.e. upto 35% of its assets) in debt and money market instruments.
The fund has abided by its investment mandate; whereby its investment in the banking and finance sector has been in the range of 92% - 100%, while it has taken cash calls in the range of 1% - 8% during last one year. While following its mandate of investing in the banking and financial services domain, RBF follows a large cap bias but does not refrain from taking a petite exposure to mid and small cap domain to add a zing to the returns on its portfolio.
Equity Portfolio
RBF is benchmarked against the CNX Bank Index. The fund holds 22 stocks as on August 31, 2011 and top-10 stocks accounted for 82.27% of its portfolio.
How Banking funds fared vis-à-vis BSE 200 & CNX Bank Index
The above table shows that RBF has performed decently on the returns front. It has underperformed its benchmark over the 3-Yr period by clocking returns of 20.7% CAGR (against the 21.1% generated by CNX Bank Index). However, it has arrested the losses by falling lesser than the CNX Banks during last one year.
On the volatility front, RBF has managed risk in a superior way by controlling its Standard Deviation at 9.61% and has exposed its investors to low risk (as against the risk exposure of the benchmark of the fund). Thus even on a risk-adjusted basis RBF has been able to generate an appealing Sharpe Ratio of 0.14, thereby even outperforming the risk-adjusted returns of its benchmark - CNX Bank index.
Fund Manager Profile
| Name of the Fund Manager | Mr. Amit Ganatra |
| Total Work Experience | 7 years |
| Managing the fund since | Nov-10 |
| Qualifications | B.Com, CFA, FCA |
The above analysis reveals that RBF's performance is quite appealing. While we are not undermining the potentials of the Indian banking and financial services sector; the fortune of RBF will be closely linked with the fortune of banking and financial services sector and thus we believe it exposes investors to the sector specific risk.
We believe investing in a particular sector via mutual fund route doesn't automatically guarantee you success in investments. We recommend investors to invest in opportunities funds instead, to benefit from the sectors which are poised for better performance. Role of professional assistance in selecting such schemes cannot be underestimated.
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