Banking and PSU Mutual Funds
A Banking and PSU Fund is a type of debt fund that focuses on investing in debt instruments like bonds and money market securities, primarily issued by banks and public sector undertakings (PSUs) in India. These funds offer a stable investment option, making them ideal for risk-averse investors.
Best Banking and PSU Mutual Funds
List of the top-performing Banking and PSU Mutual Funds sorted by returns with their AUM and Expense Ratio.
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AUM ₹806 Cr •
Expense 0.36%
AUM ₹9034 Cr •
Expense 0.39%
AUM ₹30 Cr •
Expense 0.15%
AUM ₹5708 Cr •
Expense 0.39%
AUM ₹9483 Cr •
Expense 0.39%
AUM ₹5904 Cr •
Expense 0.39%
AUM ₹3092 Cr •
Expense 0.32%
AUM ₹5706 Cr •
Expense 0.38%
AUM ₹1852 Cr •
Expense 0.28%
AUM ₹572 Cr •
Expense 0.18%
AUM ₹13507 Cr •
Expense 0.33%
AUM ₹270 Cr •
Expense 0.39%
AUM ₹12916 Cr •
Expense 0.35%
AUM ₹3719 Cr •
Expense 0.34%
AUM ₹53 Cr •
Expense 0.37%
AUM ₹336 Cr •
Expense 0.27%
AUM ₹27 Cr •
Expense 0.39%
AUM ₹190 Cr •
Expense 0.21%
AUM ₹100 Cr •
Expense 0.25%
AUM ₹4391 Cr •
Expense 0.23%
What are Banking and PSU Funds?
According to SEBI regulations, Banking and PSU Funds must allocate at least 80% of their assets to debt instruments from such institutions, ensuring a higher credit quality than other debt funds. This allows these funds to strike a balance between liquidity, safety, and returns.
Typically, these funds invest in high-credit-quality debt instruments, often AAA-rated, with short to medium-term maturities. Fund managers often target "Maharatna" and "Navratna" companies, known for delivering reliable returns.
Maharatnas and Navratnas are designations given by the Government of India to select public sector undertakings (PSUs) based on their performance, financial strength, and operational autonomy.
- Maharatna Companies are the largest and most profitable PSUs, with a high degree of autonomy to make investment decisions and expand their operations. Examples include ONGC, Indian Oil, and NTPC.
- Navratna Companies are mid-sized PSUs that have shown consistent financial performance and have greater operational freedom compared to regular PSUs. Examples include Bharat Electronics Limited (BEL) and Oil India Limited.
These companies are typically targeted for investment in Banking and PSU Funds due to their financial stability and strong credit ratings.
A Banking and PSU fund is a type of debt mutual fund that primarily invests in debt instruments issued by banks, public sector undertakings, and public financial institutions. These funds are designed to offer relatively stable returns by investing in high-quality, low-risk securities. The focus on government-backed entities generally adds a layer of security to the investments, making these funds an attractive option for conservative investors.
The primary objective of Banking and PSU funds is to generate income by investing in a portfolio of debt securities with minimal credit risk, while also aiming for capital appreciation over the long term.
Asset Allocation in Banking and PSU Funds
The core principle of Banking and PSU funds is to invest in debt securities with a high degree of safety. The asset allocation of these funds typically includes:
- Government Securities: Bonds and debt instruments issued by the government or government-backed institutions.
- Bonds and Debentures: Issued by banks, PSUs, and other public financial institutions.
- Money Market Instruments: Short-term debt securities like Treasury bills and certificates of deposit.
The fund manager is responsible for selecting the right mix of securities, taking into account factors such as interest rates, credit quality, and macroeconomic conditions. This careful selection process is designed to provide investors with steady returns while minimising risk.
Frequently asked questions on Banking and PSU Mutual Funds
What is the difference between Banking and PSU funds and corporate bond funds?
Banking and PSU funds primarily invest in debt instruments issued by banks and public sector enterprises, offering high safety. Corporate bond funds, on the other hand, invest in bonds issued by private companies, which may carry higher credit risk but also the potential for higher returns.
Are Banking and PSU funds risk-free?
No, while they are relatively safe due to their focus on government-backed securities, they are still subject to interest rate risk, credit risk, and inflation risk.
Can I lose money in Banking and PSU funds?
Yes, there is a possibility of losing money, especially if the fund’s investments are affected by rising interest rates or credit downgrades. However, the risk is generally lower compared to equity or corporate bond funds.
How do Banking and PSU funds compare with traditional fixed deposits?
Banking and PSU funds typically offer better returns than fixed deposits, but they also carry some risk, unlike fixed deposits which provide guaranteed returns.
Which is better, a Banking and PSU fund or a gilt fund?
Gilt funds invest exclusively in government securities and are subject to interest rate risk, while Banking and PSU funds offer a mix of government-backed and high-quality corporate debt, potentially providing more stable returns. The best choice depends on your risk tolerance and investment goals.
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