Should You Invest in Banking Sector?

The banking and financial sector slowly picks up credit growth and enhances asset quality. According to industry experts, the banking and financial sector could now be a good investment opportunity for investors after considering a few factors.

The valuation of firms in the BFSI sector seems promising. Nevertheless, an investment made in banking sectoral funds may overlap. Thus it may be suitable only for tactical allocation. Before you decide to invest in one of the funds in the BFSI sector, it is recommended you check the overlap your investment could have with the rest of your portfolio.

Most of the actively managed large-cap and multi-cap funds have a fair orientation to banking and financial service stocks to allocate to the sector strategically. According to industry experts, if you invest in sectoral funds, you will still need to time your entry and exit to prevent any mishaps. If you do not plan your entry and exit, you may incur losses; you may need to wait longer for recovery and accrue optimum returns.

Hence, if you are someone who cannot time your exit well and think you cannot sustain the volatility of sectoral funds, it is not recommended for you. It is suggested to stagger your investments into these funds versus a lumpsum investment. You can prevent the risk of the fund manager’s underperformance by investing passively in this sector.

For any clarifications/feedback on the topic, please contact the writer at bhavana.pn@cleartax.in

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