Equity markets have been highly volatile over the past year with Indian indices being among the worst performers, lagging steeply in comparison to other emerging and even developed economies.
Investors are faced with a mixed picture. On the one hand, increasing income tax thresholds, GST reforms, lower interest rates, steady performance in GDP growth rate, and controlled inflation present a positive outlook. Corporate earnings have been moderate with some pockets delivering well.
However, the external picture is a bit muddled. Despite the recent thaw, penal US trade tariffs continue to be levied. Disruptions from the use of technology (AI, automation etc.) leading to job losses, geopolitical tensions and slowing global demand are all hurting businesses, especially those in the export-oriented segments.
For investors, taking exposure to companies that are leaders in their respective sectors may work well given that these firms, perhaps, are better placed to withstand a turmoil during troubled macroeconomic scenarios. Though most of such companies happen to be large caps, firms that are sector leaders with moats exist even in mid and small cap segments.
In this regard, Bandhan Mutual fund has rolled out a new BSE India Sector Leaders scheme that is open for subscription till September 17.
Read on to take an informed call on whether you should be investing in the new fund.
Choosing the leaders
The primary idea behind investing in companies that are leaders in the segments they operate in, is to gain from their economic moats.
These moats can be in several forms. Strong brand presence and recall, cost advantages due to scale economics, high switching costs for consumers, ability to control access to new entrants, intellectual property and the network effect are some of these competitive advantages.
From a market perspective, it makes sense for investors to take exposure to such stocks for a variety of reasons.
Long-term wealth creation, strong customer loyalty, low possibility of disruptions that could significantly hurt business prospects, sustained profitability over the foreseeable future, resilience to turbulent markets and easy access to capital (often at lower interest rates) characterise these leading firms.
What’s the fund about?
Bandhan’s new fund will track the BSE India Sector Leaders Index. The investment universe of the index is the BSE 500 index.
Now, the top three companies within a sector based on their total market capitalisation are taken. A maximum of 21 sectors are included in the benchmark with 61 stocks making it to the BSE India Sector Leaders Index.
However, the weighting of individual stocks is based on free-float market capitalisation. The maximum weightage is 5 per cent for a stock, while the minimum is 1 per cent.
Index constituents are rebalanced semi-annually in June and December.
The difference in returns between the best and worst performing sectors can vary significantly to the tune of 40-50 percentage points in a given year, going by the last 10 calendar years’ performance.
Periodic rebalancing of sectors ensures rotation of performing segments. Besides, the ceiling on weightage to individual stocks and restricting firms within a sector to a maximum of three helps moderate concentration risk.
The recent factsheet (August 31, 2025) shows that the top five sectors held by the fund are consumer discretionary, financial services, commodities, information technology, and industrials. These sectors have weightages of 8.9-23.1 per cent in the index.
In terms of stocks, Bharti Airtel, ICICI Bank, HDFC Bank, Reliance Industries and Infosys are the top five holdings.
The market capitalisation composition going by June 2025 data shows that 82.9 per cent of the portfolio was large cap, 10 per cent was midcap and the remaining 7.1 per cent was small cap.
It is a flexicap index with a heavy large cap tilt.
When it comes to performance, the BSE India Sector Leaders index has done well when compared to the BSE Sensex TRI as well as the broader market BSE 500 TRI, going by back-tested data from April 2008 to July 2025.
On a point-point basis, the BSE India Sector Leaders index has outperformed the BSE Sensex TRI by 2-5 percentage points and the BSE 500 TRI by 1-1.5 percentage points over three, five and ten-year timeframes.
When three-year and five-year rolling returns are considered, the BSE India Sector Leaders index once again comfortably outperforms the other two benchmarks mentioned earlier.
What should investors do?
Bandhan BSE India Sector Leaders index fund is a first such offering from an asset management company so far.
The large-cap tilt gives the fund a reasonable degree of stability amid volatile conditions. This is more relevant now as the recovery rally especially during April-June in the mid and small cap spaces have resulted in those indices considerably widening the valuation gap with large caps.
The fairly well-diversified portfolio spread across sectors and stocks would give some cushion to investors during downturns.
A passive fund with a clear market capitalisation-based stock selection methodology means the process is fairly transparent and simple to understand for investors.
For those willing to invest for the long term of five-plus years at least, the new fund can be a good diversifier to their portfolios.
Small SIPs can be considered in the fund with a long-term perspective.
Published on September 13, 2025
