Bank of India Mutual Fund has announced the launch of the Bank of India Banking & Financial Services Fund, an open-ended equity scheme designed to capitalize on opportunities within India's banking and financial services sector. The fund represents a sector-focused investment strategy targeting companies across the entire financial ecosystem.

Fund Structure and Investment Strategy

The scheme aims to generate long-term capital appreciation by investing in equity and equity-related instruments of businesses engaged in banking, non-banking financial services, insurance, fintech and capital market activities. The fund will follow a sector-focused strategy and is benchmarked against the Nifty Financial Services TRI.

According to the fund house, the investment approach will combine top-down and bottom-up stock selection across market capitalizations. The scheme plans to invest across established banks, NBFCs, emerging fintech firms, and insurance and capital market companies.

NFO Details and Investment Terms

The new fund offer will open on January 8 and close on January 22, 2026, providing investors with a two-week window to participate in the initial offering.

The scheme will levy an exit load of 1% on redemptions or switches made within 60 days from the date of allotment. No exit load will apply beyond that period, encouraging long-term investment behavior.

Sector Outlook and Performance Context

The launch comes at a time when the banking and financial services sector continues to play a central role in India's economic activity, supported by credit growth, digitization, financial inclusion and the formalization of economic transactions. Over the past two decades, the Nifty Financial Services TRI Index has significantly outperformed broader market indices, reflecting the sector's long-term growth trend.

Fund House Profile

Bank of India Investment Managers Private Limited, the asset management arm of Bank of India, serves as the investment manager for Bank of India Mutual Fund. The fund house has established a significant presence in the mutual fund industry with diversified offerings across multiple categories.

The fund is positioned for investors seeking long-term exposure to the banking and financial services sector, subject to market risks associated with sector-specific investing.

Indian government bonds experienced a notable decline in early trading on Wednesday following the Reserve Bank of India's decision to focus on illiquid securities for its upcoming debt purchase operation. The move has left market participants questioning the central bank's strategy as it sidesteps market demand for liquid note inclusion.

Bond Market Performance

The benchmark 10-year government bond yield demonstrated the market's reaction to the RBI's announcement:

Bond yields move inversely to prices, meaning the increase in yield reflects falling bond prices across the market.

RBI's Security Selection Strategy

The Reserve Bank of India's latest debt purchase operation will target bonds worth ₹50,000 crores, equivalent to $5.55 billion. However, the selection criteria have raised concerns among market participants:

• Maturity range: Securities maturing between 2029 to 2053
• Liquidity status: All selected notes are illiquid and infrequently traded
• Market expectation: Traders anticipated inclusion of the liquid 6.33% 2035 bond
• Consecutive pattern: Second week of avoiding liquid papers in open market operations

"For the second consecutive week, the RBI has been falling short of market expectations leaving us puzzled as to what could be the reason for not giving the 6.33% 2035 bond in OMO," commented a trader from a primary dealership.

Market Concerns and Implications

Traders have expressed significant concerns about the sustainability of bond market rallies under the current approach. The focus on illiquid papers means funds invested in liquid securities remain tied up, potentially limiting market momentum. This concern becomes particularly relevant given the substantial debt issuance pipeline ahead.

Upcoming Debt Supply Challenges

The massive debt supply from both state and central governments has created investor concerns about deteriorating demand-supply dynamics in the bond market.

Interest Rate Environment

India's overnight index swap rates are expected to remain range-bound during the current session due to lack of market triggers:

• Five-year OIS rate: 5.95% (little changed)
• One-year and two-year OIS rates: Not yet traded
• Market outlook: Thin trading range anticipated

The bond market entered 2026 with uncertainty surrounding investor appetite for increased debt supply, despite the RBI's continued support through regular bond purchase operations. The central bank's strategy of focusing on illiquid securities while maintaining substantial purchase volumes reflects a complex balancing act between market support and operational objectives.