Should you invest in banking and financial services funds at this time?

Banking and financial services funds are at the top of the chart with a category average return of 10.38 per cent over the past three months. If you are tempted to invest in these funds, think again. If you own diversified equity funds, your fund manager would already have considerable exposure to this sector. Besides, if you look at calendar year returns, you will find that the returns of this category tend to be volatile (see table). If you do want to take a tactical bet on sector funds, enter a category that is down and out currently. Exit it when it is doing well. Restrict exposure to sector funds to 5-10 per cent of the equity portfolio.