Therefore, experts recommend if you can't stomach the volatility, don't take too much of an exposure to banking stocks or funds.
Banking is a high-beta sector and moves more sharply than the rest of the market on news.
Therefore, its volatility could be unnerving for retail investors.
Hiren Dhakan, associate fund manager, Bonanza Portfolio, says considering the volatility, it is better to stay away from the sector.
"We don't seen any incremental improvement in returns. “Also, the outlook is still not clear, because the Reserve Bank of India’s stance is mixed.
“We feel the sector is overvalued and overbought.”
According to data from Value Research, over a year, all banking funds have shown negative returns.
The one-year returns of the largest funds in terms of assets under management are: Reliance Banking (-9.6 per cent), ICICI Prudential Banking and Financial Services (-1.5 per cent), Sundaram Financial Services Opportunity Regular (-10.3 per cent), UTI Banking Sector (-11.4 per cent).
However, over a one-month and three-month periods, the returns are positive.
If you can see through the interim volatility, Dhakan advises an investment period of at least five years, since banking is high-beta.
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