Sector - Financial Services Mutual Funds

Are you in search of a smart investment avenue for India's developing finance market? Financial services mutual funds offer investors an excellent chance to invest in companies that contribute to the economic success of the nation. The mutual funds specifically concentrate on banking organisations, insurance companies, asset management companies, housing finance companies, and other financial organisations.

What are Financial Services Mutual Funds?

Financial services are sectoral mutual funds that invest only in companies dealing in financial services. These mutual funds do not distribute investment in various sectors but invest solely in companies that deal in financial products and services: The investment portfolio can include:

• Private and public sector banks
• Insurance companies
• Non-banking financial companies
• Asset management companies
• Stock exchanges
• Housing finance companies
• Fintech and financial technology firms

Since these funds are invested in a single sector only, the performance of such mutual funds is contingent upon the performance of the financial sector.

Features of Financial Services Mutual Funds

• Targeted Sector Exposures: These funds invest in the financial services sector, providing you with exposure to one of the key sectors in the economy.
• Professional Management: A professional management team analyses firms, follows market trends and makes investments on behalf of the investor.
• Great Potential for Growth: As banking, insurance, lending, and digital finance continue to expand, these funds have the potential to generate long-term capital appreciation.
• Diversified Within the Sector: Rather than making investments in a single company, your money is diversified among several firms in the financial services sector.

How to Invest in Financial Services Mutual Funds?

You can invest in financial services mutual funds by following simple process:

Step 1: Choose investment mode. You can invest through:

• AMC websites
• Online investment platforms provided by stockbrokers
• Mutual fund distributors

Step 2: Choose a suitable financial services mutual fund.

Step 3: Choose between Systematic Investment Plan (SIP) and Lump sum based on your goal and make investment.

Step 4: Make payment through UPI, netbanking or other available methods.

Why to Invest in Financial Services Mutual Funds?

• Benefit from India's Financial Growth: The financial industry in India keeps growing with rising penetration of banking, digital payments, insurance, and credit. By investing in these sectors, you get the chance to be a part of this story of growth.
• Capital Appreciation: These mutual funds can give long-term gains to investors who have a long time frame of investment.
• Investment in Diversified Portfolio: Rather than putting your money into one organization, you invest in several top financial companies.
• Easy and Flexible: You can begin investing with little money and make your investment portfolio by SIPs.

Taxation Rules for Financial Services Mutual Funds

Financial services mutual funds fall into the equity mutual funds category and are taxed like other equity mutual funds.

• Short-Term Capital Gains (STCG): If units of financial services funds are sold within 12 months from the date of purchase, the profits will be considered STCG, which shall be taxed at 20%, with applicable surcharge and cess.
• Long-Term Capital Gains (LTCG): Profit earned through sale of units beyond 12 months will be treated as LTCG. Any profit made out of financial services funds above ₹1.25 lakh in a year will be taxed at 12.5% whereas LTCG below ₹1.25 lakh will not attract any tax.

Tax rules are subject to change from time to time, hence it is recommended that the latest tax rules should be checked before making investment decisions.