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A Promising Start

UTI Banking was born under trying circumstances. However, it has done reasonably well in a short period of around 19 months

In April last year, when UTI Mutual Fund came out with this fund, the equity markets were in the grip of uncertainty. The General Elections were bothering markets and the BSE Banking index was at its peak.

As the fund was starting its life with a modest corpus of Rs 50 crore, the markets turned tail. The NDA lost power and the infamous May mayhem struck investors. Like the BSE Bankex, the fund went into free fall. In its first 20 days, it lost a quarter of its portfolio. Although recovery began immediately, it ended its first month down 18 per cent. The only positive was that it did manage to outperform the BSE Bankex, which slipped by 25.27 per cent during the same period.

So far this year, the fund is up 11.49 per cent and is behind the 14.59 per cent return of its benchmark, the BSE Bankex.

From the very beginning, the fund has shown preference for large-cap stocks, with SBI dominating its portfolio. This, along with a well-diversified portfolio that is spread over 16-20 stocks makes UTI Banking a good choice for investors bullish on banking sector.

The fund manager does not bet heavily on a single stock. SBI has always dominated the portfolio. Also, the fund maintains a 5 to 10 per cent exposure to a number of stocks. This approach adds a good measure of diversification, which is crucial in a sector fund. The fund manager also has a habit of sticking with his picks. For example, there are at least nine stocks that have always been in portfolio since launch. Another four have been out of the portfolio just for a month or two. Though it's still too early to comment on this aspect of the fund, it could be a great strategy if the fund continues its buy and hold approach.

The fund's assets had shrunk to Rs 39 crore in December last year. However, it has once again regained its strength and is ready to move on. UTI banking has done reasonably well in a short period of around 19 months. Investors should keep a close look at it.