Both the banking indices, CNX Nifty and BSE Bankex delivered whopping returns of over 40% in 2012 with HDFC Bank and ICICI Bank among top picks of the various sector specific Banking Mutual Fund schemes.

ICICI Banking and Financial Services Fund and Reliance Banking Fund delivered super returns of 51% and 44% respectively. FMCG related schemes also delivered good returns of around 40%.

After digitisation of cable television a few months ago and the raised FDI limit of 74% in the entertainment and media sector, stocks related to them skyrocketed. PVR, Hathway Cables etc delivered 100% returns in a year.

Even though sector specific schemes are cyclical in nature, investing in these schemes or funds may lead to disappointing returns if the investment is not done at the right time. Unaware of the risks, investors bought funds like IT funds when the sector was booming in 2000 and infrastructure funds in 2007. Having burnt their hard earned money, these investors are now redeeming their funds and selling stocks in total and getting out of the market.

On the other hand overseas investors love our stocks, having pumped in billions of dollars and making the Sensex and Nifty deliver fantastic returns. Since sector specific funds are quite volatile, it would be prudent for a retail investor to choose a consistent performing equity diversified fund for good returns over the long term.

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