List Of Banking & PSU Funds To Consider Investing In India

Banking and Public Sector Undertaking (PSU) funds are debt funds that invest at least 80% of their assets in debt instruments issued by banks, public sector companies, and public financial institutions. Being one of the safest investment options, banking and PSU funds include only top-performing fixed income instruments that are rated AAA or above. 

Keep reading to learn more about top banking & PSU funds! 

Top Banking & PSU Funds to Invest in 2022

Earning a good passive income through mutual funds is every investors’ dream. However, not everyone prefers the volatility of certain investment options. Thus, for investors with a low-risk appetite, here is a list of the top 7 banking and PSU funds that you may consider investing in. 

Fund	NAV	AUM	1-year Returns	3-year Returns
IDFC Banking & PSU Debt Fund	Rs. 19.9399, as of 18th Feb 2022	Rs. 18,069 crore	3.94%	8.33%
Axis Banking & PSU Debt Fund	Rs. 2,131.36, as of 18th Feb 2022	Rs. 15,853.70 crore	3.84 %	7.64 %
ICICI Prudential Banking & PSU Debt	Rs. 26.0258, as of 18th Feb 2022	Rs. 12,567.74 crore	NA	7.62%
DSP Banking & PSU Debt Fund	Rs. 19.4006, as of 18th Feb 2022	Rs. 3,022.15 crore	3.69%	7.79%
Kotak Banking and PSU Debt Fund	Rs. 52.6017, as of 18th Feb 2022	Rs. 9,006.77 crore	4.96%	8.15%
HDFC Banking and PSU Debt Fund	Rs. 18.5706, as of 18th Feb 2022	Rs. 7964.39 crore	4.5%	7.9%
Aditya Birla Sun Life Banking & PSU Debt Fund	Rs. 295.159, as of 15th Feb 2022	Rs. 15,265 crore	4.81%	7.98 %

Also Read: International Mutual Funds

Benefits of Investing in Banking and PSU Funds

With numerous mutual fund schemes in the market, it becomes difficult to choose the most suitable scheme for one’s portfolio. Before making your decision, take a look at the advantages that banking & PSU funds offer.

• Superior credit quality

Banking and PSU funds are famous for only investing in top-rated debt instruments. These financial securities are issued by the best government-backed companies. Given their quasi-sovereign nature, these funds enjoy high credit ratings. 

• Low to moderate risk

Investing in debt securities of high quality for a shorter duration makes this fund less risky. That said, keep in mind that these funds are not completely risk-free. Since they are mostly investing in government-backed financial instruments, they are less risky than most other debt funds. 

• High liquidity 

As these funds only invest in instruments with a minimum rating of AAA, they have higher liquidity. Investors and fund managers can convert their investment into cash easily in case of financial emergencies. 

• Reasonable returns

These types of debt funds offer better and higher returns than fixed deposits. Accordingly, these funds are suitable for conservative investors who are seeking stable returns.

Limitations of Investing in Banking & PSU Funds

Indeed, the risks associated with this category of debt funds are minimal. Yet, there are certain limitations that investors should keep in mind. Let’s take a look at them. 

• High Net Asset Value

Due to their minimal risk and high credit quality, banking and PSU funds are in high demand. Many risk-averse investors invest all their funds to take advantage of such a low-risk opportunity. This raises the cost of investing.

• Lower returns compared to equity investments

Equity investments are far riskier options than debt investments. Thus, the returns they bring are also higher. For investors looking to make hefty profits through mutual funds, banking and PSU funds might not be a suitable option. 

• Short maturity period

The holding period of these funds is usually between 1 to 3 years, making them short-term investments. Thus, it is not an ideal option for individuals with a long term investment horizon. 

Also Read: List Of Best Value Mutual Funds

How are Banking and PSU Funds Taxed?

If the holding period of the units in a banking and PSU fund is less than 3 years, the realised returns are added to your total annual income and taxed based on your income tax slab. 

However, if you decide to withdraw the returns and exit the scheme post three years from the date of purchase, you will have to pay long term capital gains tax. Your returns will be taxed at 20% with indexation benefits. 

Who Should Invest in Banking & PSU Debt Funds?

By far, it is clear that banking and PSU funds are low-risk investment options. The instruments chosen for investment are backed by the government, making them secure and of high quality. Furthermore, these funds are more or less safe from market volatility. 

Thus, investors looking for a short-term investment option with low risk may consider investing in these funds. Furthermore, investors who mainly invest in high-risk mutual fund schemes can allocate a part of their funds available with them to Banking & PSU Debt Funds to balance their portfolios. 

Final Word

The short maturity period and superior credit quality of these debt funds are ideal for investors with a low-risk appetite. That said, before investing, individuals must make sure to take into account certain vital aspects, such as past performance of the fund, expense ratio, track record of the fund manager, etc.

Frequently Asked Questions

1. How long should I invest in Banking and PSU funds?

These types of mutual funds are better suited for a shorter investment horizon. Their maturity period ranges between 1 to 3 years. Thus, it is preferable to invest in them for a maximum of 3 years. 

2. Do banking and PSU funds have a lock-in period?

No, banking and PSU debt funds are open-ended and have no lock-in period. They are highly liquid, allowing you to redeem your investments at your convenience. Accordingly, in case of a financial emergency, you can opt-out of the scheme. 

3. Does market volatility affect banking and PSU funds?

Banking and PSU funds are less impacted by market volatility in comparison to most of the other debt funds. That said, fluctuations in interest rates can make this fund perform poorly. Hence, it is essential for investors to assess their risk appetite before investing.

4. What is the difference between regular and direct mutual funds?

A direct plan is when an investor invests in a mutual fund scheme directly via an asset management company (AMC). Whereas when an investor goes through a distributor or broker, they invest in a regular plan. A direct plan has a lower expense ratio but higher NAV.

Before you go… 

• Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Install the Navi app now!
• Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to Rs. 5 crores. Install the Navi app now and get your instant in-principle approval right away! Interest rates starting at 6.40% p.a.
• How about an affordable health insurance policy 👨‍⚕️ starting at a monthly premium of just Rs. 241? Install the Navi app and get your policy in under 2 minutes
• Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.

Disclaimer- Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.