Top Sectoral Banking Mutual Funds in India Based on 5Y CAGR (2025)
Banking mutual funds, a subset of sectoral mutual funds, focus on investments in the banking and financial services sector. These funds allocate a significant portion of their assets to banks and financial institutions’ stocks. It can allow investors to gain from the sector’s growth and stability. However, like all investments, they come with their own set of risks and considerations. Hence, understanding these nuances can help you make informed investment decisions and maximise potential returns. In this article, let’s dive deep into the best banking mutual funds, their features, how to invest, taxation, and more.
List of Best Sectoral Banking Mutual Funds
| Fund Name | AUM (Cr.) | CAGR 3Y (%) | Expense Ratio (%) | CAGR 5Y (%) |
|---|---|---|---|---|
| Nippon India Banking & Financial Services Fund | 6,966.89 | 24.89 | 1 | 31.65 |
| Sundaram Fin Serv Opp Fund | 1,524.15 | 26.84 | 0.85 | 28.43 |
| Invesco India Financial Services Fund | 1,307.57 | 26.33 | 0.87 | 27.26 |
| Aditya Birla SL Banking & Financial Services Fund | 3,439.09 | 22.47 | 1.09 | 26.91 |
| ICICI Pru Banking & Fin Serv Fund | 9,374.76 | 21.44 | 1.01 | 26.73 |
| SBI Banking & Financial Services Fund | 7,649.78 | 24.30 | 0.75 | 26.62 |
| UTI Banking and Financial Services Fund | 1,211.18 | 23.06 | 1.1 | 26.58 |
| Tata Banking & Financial Services Fund | 2,751.84 | 25.48 | 0.5 | 25.54 |
| Baroda BNP Paribas Banking and Fin Serv Fund | 256.78 | 23.57 | 0.84 | 24.52 |
| Taurus Banking & Fin Serv Fund | 11.72 | 21.15 | 1.57 | 23.68 |
Disclaimer: Please note that the above table is for educational purposes only, and is not recommendatory. Please do your own research or consult your financial advisor before investing. The data is derived from Tickertape Stock Screener and is subject to real-time updates.
Note: The data on the top 10 banking mutual funds in India list is from 13th May 2025, and the data is derived from Tickertape Mutual Fund Screener, using the following parameters:
- Category: Sectoral Fund – Banks & Financial Services
- Plan: Growth
- 3-yr CAGR
- 5-yr CAGR: Sorted from highest to lowest
🚀 Pro Tip: You can use Tickertape’s Stock Screener to research and evaluate stocks with over 200+ filters and parameters.
Overview of the Top Sectoral Banking Funds
Nippon India Banking & Financial Services Fund
This fund aims to deliver consistent returns by actively investing in equity and equity-related securities of companies operating within the banking and financial services sector. The AMC retains the flexibility to allocate investments dynamically—either fully or partially across permissible instruments—depending on return potential or market defensiveness.
Sundaram Financial Services Opportunities Fund
Designed for investors seeking long-term capital growth, this fund predominantly invests in Indian companies within the banking and financial services domain. Among the top banking funds India, the fund follows an equity-focused strategy targeting emerging and established financial institutions poised for sectoral growth.
Invesco India Financial Services Fund
With a focus on capital appreciation, this fund builds its portfolio around equity and equity-related instruments of companies engaged in banking and financial services. The strategy is centred on capturing growth opportunities within the financial ecosystem.
Aditya Birla Sun Life Banking & Financial Services Fund
This scheme seeks to generate long-term wealth for investors by investing majorly in equity and related instruments of companies in the banking and financial services space. It aims to benefit from the structural growth and reform-driven opportunities in the sector.
ICICI Prudential Banking and Financial Services Fund
Targeting long-term capital appreciation, this fund focuses on companies involved in banking and financial services. Among the best banking funds, the strategy leans towards tapping into the potential of India’s evolving financial sector through focused equity investments.
How to Invest in Banking Sector Mutual Funds?
Here’s a comprehensive guide on how you can make the most of your investment journey:
- Open a Demat Account: Visit a mutual fund platform and log in to your existing demat account. You can also open a demat account on smallcase.
- Use Financial Tools for Fund Analysis: Identify top banking funds India using tools like the Tickertape Mutual Fund Screener. With over 50 pre-loaded filters, it helps you create a comprehensive list of private sector mutual funds in India by providing insights into the fund’s performance.
- Choose Your Investment Method: Once you’ve selected and made a list of the best banking sector mutual funds in India, access your account and navigate to the ‘Mutual Funds’ section. Decide whether to invest through a Systematic Investment Plan (SIP) or make a one-time lump-sum investment.
By following these steps, you can effectively invest in banking mutual funds and align your investment strategy with your financial goals.
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What are Banking Mutual Funds?
Banking mutual funds, also known as sectoral banking mutual funds, are equity funds that focus on investing in the banking sector. These funds allocate their assets to equities or equity-related instruments within the banking industry, offering investors concentrated exposure to banking securities. This targeted approach allows you to potentially capitalise on the sector’s growth and performance.
Emphasising equities, banking funds align their strategy with the dynamics of banking institutions, making them attractive for those seeking financial success in the banking industry. The strategic asset allocation of these funds aims to maximise returns by predominantly investing in banking equities and related instruments.
How Do Banking Mutual Funds Work?
Banking mutual funds allocate a significant portion of their assets to stocks of banks and financial services companies. These investments might include large-cap, mid-cap, and small-cap banks, as well as non-banking financial companies (NBFCs) and insurance firms. This sector-specific focus allows investors to gain exposure to the banking industry’s growth and stability.
A professional fund manager oversees the operations of banking sector funds. The manager’s role is to actively select and manage the fund’s portfolio based on market analysis, economic trends, and the financial health of the banking sector companies. This active management aims to optimise returns while managing sector-specific risks.
Features of Banking Mutual Funds in India
Here are a few key features of banking financial services sector mutual funds:
- Specialised Subset: Mutual funds in banking sector form a distinct category within the broader mutual funds industry in India, focusing specifically on investments in the banking sector.
- Maturity Date and Earnings Distribution: Every banking mutual fund has a predetermined maturity date. Beyond this date, the fund distributes its earnings among its contributors after accounting for the fees charged by the Asset Manager.
- Strategic Investment Approach: Unlike random allocation, AMCs carefully select the best-performing companies within the banking sector for fund investments. This strategic approach aims to optimise returns for you by focusing on high-potential banking equities.
- Diversified Portfolio: Banking mutual fund investments provide you with exposure to various facets of the banking industry, such as retail banking, investment banking, and more. This diversification helps in spreading risk and enhancing the stability of your investment portfolio.
- Favourable Banking Sector Trends: Given recent trends, AMCs increasingly favour the Indian banking sector as a prime investment avenue. This reflects the sector’s attractiveness and potential for robust returns, driven by factors such as economic growth, technological advancements, and regulatory support.
Benefits of Investing in Banking Mutual Funds
Investing in best banking sector funds can offer several advantages, making them an attractive option for investors seeking exposure to the financial sector. Here are some key benefits:
- Historical Performance: Historical data suggests that returns from the banking sector can be robust, regardless of the investment window.
- Regulatory Protection: The Indian banking sector is highly regulated, with stringent checks and balances imposed by the Reserve Bank of India (RBI) and the government. These regulations ensure the stability and reliability of the banking sector. The rigorous standards for opening, expanding, and shutting down banks ensure that depositors and other lenders are well-protected against volatility. This regulatory environment can provide investors with a sense of security and confidence when investing in mutual funds in banking.
- Stability: The Indian banking sector is known for its stability compared to other sectors like IT, oil and gas, and automobile industries, which are often subject to higher risks and market shocks. The banking sector’s relative stability can make investing in banking sector funds a more secure option, potentially reducing the risk of significant losses. This stability is a crucial factor for investors seeking steady and reliable returns.
How are Returns Calculated on Banking Sector Mutual Funds?
Understanding how returns are calculated may be crucial when delving into the realm of banking sector mutual funds. This process can offer insights into the fund’s performance and might aid you in making informed decisions. Here’s a breakdown of how returns are determined on banking sector mutual funds:
- Net Asset Value (NAV): Returns on mutual funds, including those focused on the banking sector, are intricately linked to the Net Asset Value (NAV). NAV represents the market value of the fund’s assets minus liabilities. The calculation divides this value by the total number of outstanding units, providing a per-unit value. Changes in NAV over time reflect the fund’s performance and may directly impact returns.
- Total Return Index (TRI): To gauge the holistic performance of the best banking and financial services funds, considering the Total Return Index (TRI) may be imperative. Unlike traditional indices, TRI accounts for both capital gains and income generated by the fund. This comprehensive measure provides a more accurate representation of the fund’s returns.
How to Choose Good Banking Sector Mutual Funds?
Identifying the right banking mutual funds for long-term is a crucial step in optimising your investment portfolio. Here are key considerations that may guide your decision-making process:
- Performance History: You can begin by assessing the banking fund performance. By analysing its track record of banking mutual funds returns over different market conditions, you may gauge its resilience and consistency. Funds that have demonstrated stability and growth over time can be considered more reliable.
- Fund Manager Expertise: The expertise of the fund manager plays a pivotal role in the fund’s success. It might be useful to research the manager’s track record, experience in the banking sector, and their ability to navigate market fluctuations. A seasoned fund manager may significantly contribute to the fund’s performance.
- Expense Ratio: You should keep an eye on the fund’s expense ratio, which reflects the costs associated with managing the fund. Generally, lower expense ratios may be more favourable as they could enhance your overall returns. By comparing the expense ratios of different mutual funds in the banking sector, you can make a more informed decision.
- Fund Size and Liquidity: It is important to consider the size of the mutual fund and its liquidity. Larger funds may offer more stability, while liquidity ensures that you can easily buy or sell shares without significantly impacting the fund’s value. Adequate size and liquidity might contribute to a smoother investment experience.
Who Should Explore Sectoral Banking Mutual Funds?
Sectoral banking mutual funds India inherently pose a heightened concentration risk compared to other mutual fund categories. These funds appeal to risk-tolerant investors aiming for above-average returns during prosperous times in the banking sector. Those with an aggressive investment approach can explore the potential of banking stocks for long-term gains.
The best sector mutual funds may be best suited for you if you can withstand significant market fluctuations in pursuit of higher returns. Additionally, these funds may require an understanding of sector dynamics and trends. If you are comfortable with closely monitoring the sector and making informed decisions, you may benefit the most.
However, it’s crucial to conduct your own research or consult a financial advisor before making ayn investment decisions.
Risks Associated With Investing in Banking Mutual Funds
Investing in banking stocks via mutual funds presents a unique set of challenges that you need to be mindful of. Here’s a detailed look at some of the main challenges:
Market Sensitivity: For instance, changes in monetary policy or economic downturns can significantly impact the profitability of banks, thereby affecting the performance of sectoral banking funds.
Risk of Non-Performing Assets (NPAs): High levels of NPAs can erode bank profitability and investor confidence. Monitoring the quality of assets held by the banks within the fund’s portfolio and staying informed about the overall health of the banking industry may help you manage this risk.
Interest Rate Volatility: For example, rising interest rates may increase borrowing costs for banks, affecting their margins. Conversely, falling rates can reduce income from loans.
Regulatory Changes: The financial sector is subject to frequent regulatory changes, which can significantly impact the operations and profitability of banks. These changes can include new banking regulations, changes in reserve requirements, or modifications in lending practices.
Taxation on Banking Mutual Funds as per the Union Budget 2024-25
Banking and financial services mutual funds are taxed according to their asset allocation and holding period. Being aware of these tax implications is essential for making informed financial decisions. The Union Budget for 2024-25 has made significant changes to the taxation on equity mutual funds. Here we have listed these changes, along with the revised tax rates for equity mutual funds:
| Capital Gains Tax | Holding Period | Old Rate | New Rate |
| Short-Term Capital Gains (STCG) | Less than 12 months | 15% | 20% |
| Long-Term Capital Gains (LTCG) | More than 12 months | 10% | 12.50% |
- Tax-Free Limit: The capital gains up to Rs. 1.25 lakh per year are tax-free. This is an increase from the previous limit of Rs. 1 lakh.
- Tax Rate: The gains exceeding Rs. 1.25 lakh are now taxed at a flat rate of 12.5%. This is an increase from the previous rate of 10%.
- Indexation: The benefit of indexation, which allowed investors to adjust the purchase price for inflation, has been removed for all asset classes, including equity mutual funds.
Factors to Consider Before Investing in Banking Mutual Funds
Before venturing into sectoral banking funds, you may want to consider the following factors:
- Risk Dynamics: Sectoral banking funds come with heightened risk levels due to their exclusive focus on the banking sector. These finance sector mutual funds may flourish when the banking sector performs well, making them particularly suitable for more daring investors.
- Time Commitment: Given the increased risk associated with concentration in these funds, a longer investment horizon may be essential. Staying invested for at least five years can significantly reduce risks. You should ensure your investment aligns with this timeframe for optimal outcomes.
- Performance Against Benchmarks: Evaluating a fund’s performance against its benchmark index can provide insights into its effectiveness. A banking mutual fund should be compared to a relevant banking index rather than an unrelated index like IT or energy.
- Fund Manager’s Expertise: The experience and track record of the fund manager can significantly impact the fund’s performance. Assess the manager’s tenure and past performance to gauge their capability in managing the fund successfully.
To Wrap It Up…
Investing in banking mutual funds can be a strategic move for those looking to capitalise on the robust performance and stability of the banking sector. While market sensitivity and the risk of non-performing assets remain challenges, the benefits of historical performance, regulatory protection, and sector stability may provide compelling reasons to consider sectoral banking funds as part of a diversified investment portfolio. However, by staying informed about market trends, regulatory changes, and the overall health of the banking sector, you can navigate the challenges and leverage the benefits of banking mutual funds to achieve your financial goals.
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Frequently Asked Questions on Sectoral Banking Mutual Funds
Banking sector mutual funds, often known as sectoral banking mutual funds, specialise in equity investments concentrated within the banking industry. These funds allocate a significant portion of their assets to banking and financial services stocks, aiming to capitalise on the growth and stability of the banking sector.
Whether to invest in banking sector mutual funds depends on your financial goals, risk tolerance, and factors like the economic climate, investment objectives, and sector performance outlook. Evaluating these elements can help you determine if these funds are suitable for your portfolio.
No, sectoral banking funds are not entirely risk-free. Like all investments, they carry certain risks which can vary based on market conditions, economic trends, and the specific securities held within the fund.
Here is a list of the best banking sectoral mutual funds sorted according to their 5-yr CAGR:
– Nippon India Banking & Financial Services Fund
– Sundaram Fin Serv Opp Fund
– Invesco India Financial Services Fund
– Aditya Birla SL Banking & Financial Services Fund
– ICICI Pru Banking & Fin Serv Fund
Note: The data on this list of the best banking mutual funds was taken on 13th May 2025. Investors should also conduct thorough research and consult a financial advisor before investing.
