According to the latest data available with Securities and Exchange Board of India, MF investments in bank stocks as on September 30 declined to Rs 55,398 crore, accounting for 18.84 percent of the total equity assets under management (AUMs) of Rs 2.94 lakh crore.

In comparison, the MF industry's exposure to banking sector had reached to an all-time of Rs 56,625 crore in August this year.

However, MFs had been raising their exposure to banking shares since January.

Software was the second most preferred sector with MFs, last month with an exposure of Rs 31,834 crore, followed by pharma (Rs 21,908 crore), auto (Rs 18,892 crore) and finance (Rs 16,358 crore).

Mutual funds are investment vehicles made up of a pool of funds collected from a large number of investors. MFs invest in stocks, bonds, money market instruments and similar assets.

According to market participants, MFs have been showing interest in banking stocks since the beginning of the year amid rising equity market and the current decline is mainly due to profit booking.

They believe that the ongoing market rally might see mutual fund assets getting diversified. This year has seen a consistent growth in investment in banking stocks by equity fund managers and fund infusion has grown from Rs 30,339 crore in January to Rs 56,625 crore in August.

In percentage term, exposure has risen from 16.6 percent to 20.10 percent during the period.

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