In the current volatile market, investors are unsure in which sector to invest. For investors with a long term investment perspective, one sector that looks promising is the banking sector. With lowering of the interest rates and also the reduction in Non Performing Assets (NPA), the banking sector looks very much optimistic.


The sector is expected to get a boost within the domestic market itself, with the interest rates likely to soften down. The Indian banks are trying to widen their horizons on the international front with a spate of M&A`s. From April 2009 a new chapter in the banking sector will be initiated as foreign banks may be allowed to pick up stake in domestic banks.

For investors who intend to invest in this sector, Reliance Banking Fund is worth considering.

Reliance Banking Fund, which was launched in May 28, 2003, is an open-ended banking sector scheme with an aim to generate continuous returns by actively investing in equity and equity related or fixed-income securities of banks.

As the fund manager Sunil Singhania puts it ``Banking Fund is an aggressive sector based fund which takes exposure in banking and financial services sector. The fund tries to invest predominantly in public sector banks followed by private banks and financial service companies``.

On the returns front, the fund has maintained momentum with its benchmark Bank Nifty. As on Feb. 08, 2008, the fund`s 1-year returns was 56.76% as compared with its benchmark `s 42.01%. Banking Fund`s 2-year and 3-year returns on the same date stands at 41.86% and 37.12% respectively as against Bank Nifty`s 38.99% and 37.15%.

As the name suggests, the fund has a portfolio comprising of stocks from banking and financial service sectors. The fund`s top ten stocks account for 60% of the fund`s AUM. Heavyweights like State Bank of India and ICICI bank account for 25% of fund`s AUM.

The fund has a Sharpe ratio (a measurement of the performance of the fund in relation to the risk taken) of 0.10 and a Beta of 0.9134 (Beta is the measure of a portfolio`s volatility in comparison to the market. A Beta of less than 1 is considered less risky).

The fund has invested heavily in fundamentally strong stocks like SBI, ICICI Bank, Canara Bank, IDBI, Bank of Baroda and Punjab National Bank.

As on Jan. 31, 2008 the fund had increased its exposure in Andhra Bank, Canara Bank, IDBI, Dena Bank and Allahabad Bank. It decreased its exposure in JM Financial. The fund newly added LIC Housing Finance to its portfolio. However, it completely exited from Bank of Maharashtra, ING Vysya Bank and Jammu & Kashmir Bank.

When asked about future indication in this sector, Sunil Singhania quipped that with the interest rates softening up, banking stocks would perform well in the near future. Also the fact that the Non Performing Assets (NPA`s) of Banks are hovering lower is a positive sign. He added that India is a largely under credited market and a growth of 15 to 20% in the future can be expected.