Best Banking Mutual Funds to Invest in 2025

Every stock or mutual fund faces the ‘test of time’ to prove its worth. What we read between the lines - how well these investment instruments have sustained during tough situations (be it recession, market crash or any sudden fluctuations).

Why should someone put his money into mutual banking funds? To reason this, we have looked into complicated graphs and the returns of these instruments. Now, there are more than 40 mutual funds in India. And this makes it difficult for a common man or a newbie investor to decide the right kind of banking mutual funds. 

This article solves that problem, here you will read about the Best Banking Mutual Funds to Invest in 2025. 

What is a Banking Mutual Fund? 

Banking mutual funds are also called Sectoral banking mutual funds. It is an investment instrument which is confined to the banking and financial institutions. Each fund has its own Assets Under Management (AUM) which is the total market value of all the investments that a mutual fund manages for its investors. 

The fund managers decide where to invest this money to achieve financial success. They achieve this by distributing their investments among banks with different market caps: large, medium, and small. Now, SEBI actively regulates these funds to ensure transparency and safeguard investors. 

However, like all sector-specific investments, they come with risks. Their returns are heavily influenced by market conditions and how well the banking industry performs overall.

Now we are giving  the list of major banking mutual funds below. The 1 year returns mentioned in the below list are subject to market fluctuations. Hence, there may be slight differences in the numbers mentioned here and the actual value.

Best Banking Mutual Funds to Invest In 2025

To evaluate the best investment plans in mutual funds these funds we are considering three parameters. 

• Performance: Annualized returns ≥ 8% over 3 and 5 years.
• AUM: ₹1,000 crore+ indicates strong trust.
• Costs: Expense ratio < 1.5%.

1. ICICI Prudential Banking and Financial Services Fund 

This fund has been growing steadily for over 20 years. The data shows 1,000% growth since 2008—an impressive 1,078% rise. Over the past 3 years, it has delivered consistent annualized returns of 10.74%, and over 5 years, it has maintained an equally solid 10.75%.

This fund has ₹8,987 crore in assets under management. Additionally, the expense ratio stands at a competitive 1.96% which means cost-effective professional fund management.  This fund is for those who seek consistent and reliable investment opportunities.

2. SBI Banking & Financial Services Fund

When we looked at the SBI Banking and Financial Services Fund, one thing became clear: it’s a strong performer with several features worth noting. Refer to the image below, and you’ll see the fund’s growth trajectory and key data points.

The fund has a size of ₹6,621.57 crore— means strong trust from investors. Its expense ratio of 1.81% also shows that the management costs are kept low and efficient. It is worthy to note that your investment is possible from just ₹100. However, if you withdraw within 30 days, there’s a small charge of 0.50%, so it’s better for medium- to long-term investments.

The NAV has been going up by 269.15% since the fund started. It is competitive with the BSE Sensex-TRI benchmark as well as market trends are in its favour.

3. Invesco India Financial Services Fund

In 2013, this fund started at a much lower value (refer the image below) but now, it has reached ₹145.78. The overall increase is 499.67%.

The fund has maintained consistent growth. In 2024, it delivered a return of 21.45%. This indicates that the fund has been a reliable option for long-term investors. Furthermore, its 5-star rating ( from Morning start) also showcases its credibility and strong standing in the market.

4. UTI Banking and Financial Services Fund

The UTI Banking and Financial Services Fund is a powerhouse of growth. Since 2004, it has achieved an incredible 1,584.46% return, turning every rupee invested into a significant wealth-building opportunity.

The returning rate in 2024 was 11.09%. With ₹168.21 million net assets, one may understand investor faith. Given a 2.50% cost ratio, you get competitively priced top-notch fund management.Originally starting at ₹10, this fund is currently ₹117 at the time of writing this article.

5. The Nippon India Banking & Financial Services Fund

This fund suits those who have knowledge of macro trends (who prefer to take selective bets) for potentially higher returns compared to other equity funds.

The Nippon India Banking & Financial Services Fund has grown by 2,996.02% since its inception. When it was started, the NAV was ₹17-now skyrocketed to ₹552. This fund's ability to capitalize on the financial sector's opportunities makes it a standout performer for investors who seek substantial returns over time.

Why Invest in Banking Mutual Funds?

While sectoral funds carry higher risks, the opportunity for significant returns makes them a compelling choice for informed investors.

• High Growth Potential: India’s banking sector is expanding due to rising financial inclusion, digitalization, and economic growth.
• Diversification: These funds invest across public, private, and NBFCs, spreading risk within the sector.
• Professional Management: Experienced fund managers make informed decisions to maximize returns.
• Liquidity: Easy to buy or sell units when needed.
• Alignment with Economic Growth: Investing in banks allows you to participate directly in India’s progress.

Risk considerations before investing in banking mutual funds in 2025

Investing in banking mutual funds in 2025 requires careful consideration of several risk factors:

1. Issues with Asset Quality: Bad loans in the micro-credit and personal sectors have lately been rather common. For instance, the quarterly slippages of RBL Bank—which largely impact credit cards and microfinance—gushed by 28%. Axis Bank estimates that the process of retail asset quality normalisation will take many more quarters. Also, RBI predicts that the gross non-performing asset (NPA) percentage ( which is at 2.6%) may rise to 3% by March 2026.

2. Slowing the Rate of Credit Growth: The Indian credit rating agency has lowered Indian banks' fiscal year 2024–25 outlook from "positive" to "stable" due to weak credit growth and profitability projections. If lending activity slows, banking mutual fund performance may suffer.

3. Problems with Liquidity: Financial institutions face issues as liquidity tightens and LDRs rise. According to India Ratings and Research, these factors may restrict credit growth, limiting banks' ability to increase loan books while sustaining profitability.

Banks are subject to ever-changing regulatory standards, which could have an effect on operational flexibility and profitability. Bank mutual funds may not do as well as expected if banks are forced to change their tactics due to new laws.Economists say that low consumer spending, flat salaries, and slow job creation are all hurting India's economic growth. Less demand for financial services could result from decreased consumer spending and borrowing, which in turn could affect the operation of the banking sector.

The takeaway

For both everyday savers and seasoned investors, banking mutual funds offer a chance to grow your money alongside India’s progress. Since,the financial services sector is a driver of the nation's growth story. While risks like market fluctuations and interest rate changes exist, they’re manageable with smart diversification and a clear understanding of your goals.Investment in sectoral funds such as banking is a way to grow your wealth consistently. To read more about how you can align your investment, visit our news section at Insurance dekho!