Top 10 Best Performing Banking and PSU Fund

Explain Banking & PSU Debt Funds

Debt Funds have low risk than equity funds. Banking & PSU Debt funds mainly invest in Commercial Banks (SCBs), Public Sector undertakings (PSUs), Public Financial Institutions (PFIs), Municipal Corporations and such other bodies.

The Banking & PSU Debt Funds carries low risk, provides liquidity and volatility, and can generate reasonably stable returns compared to bank FD or bank deposits.

Asset Allocation

80 to 100% assets are parked under Debt Securities and Money Market Instruments of Banks, PSU, PFIs and Municipal Bonds mostly in the AAA-rated category. These are low to medium risk profile investment. 0 to 20% of assets are allocated to Government Securities (low to medium risk profile). 0 to 10% of assets are allocated to REITs (Real Estate Investment Trust) and InvITs (Infrastructure Investment Trust) in medium to high-risk profile.

The average maturity of an investment is about two years.

Benefits of Banking & PSU Debt Funds

• Return – Banking & PSU Funds are stable funds and the average return is 8 to 10 % in 1 year time. This return is better than Bank FDs and deposits.
• Low Risk –Investment is done on highly rated companies (AAA rated). The portfolio is planned in such a way where management is active and the value of the fund is mostly liquid.
• Investment Horizon – Banking & PSU Funds are for short to medium-term Investment Horizon which is between 12 to 24 months.
• Tax – Banking & PSU Funds are Debt Funds. You need to pay short team capital gain when invested for up to three-year window. Short team gains are added to the income and taxed at the income tax slab applicable to the investor. The long team gain calculated when an investment is done for more than 3 years; LTCG is 20% with indexation benefit.
• Cost – Compare to Equity or Hybrid fund, Debt fund has a low expense ratio.

Consideration of Banking & PSU Debt Funds

• Fund Performance is majorly depending on the Interest rate. In case interest rates decrease, the NAV of the securities increase and vice versa. In a rising interest rate scenario, Fund Manager tries to increase its investment in Money Market Securities. In the scenario where the interest rate is going to fall, FM increases its investment in debt securities.
• Other Risk areas are Liquidity or Marketability Risk, Credit Risk, Reinvestment Risk and Derivatives Risk.

Why to invest in Banking & PSU Debt Funds?

Banking & PSU Debt Funds invest major assets in AAA-rated category, short-term to medium-term maturity instruments, focus on high credit quality, high liquid options make them low-risk investment. You will get a better return from your bank FDs and Deposit. Stable return for short team investment.

Who can invest in Banking & PSU Debt Funds?

These funds suit to investors who are looking for a higher return from bank deposits, without taking significantly higher risks. The investment horizon is 1 to 2 yrs. One who is looking for low volatility and steady returns Banking & PSU Debt Funds are the best fit.

In this section, we have defined "Top 10 Best Performing Banking and PSU Funds" in India. The calculation is done based on difference of current NAV and 30 days prior NAV. This is not an average return.