If you do not wish to take the risk of investing in market linked schemes like equity mutual funds you can still invest in debt funds and earn stable returns. While equity schemes predominantly invest in equity and equity related instruments, debt funds invest in fixed income securities to achieve its investment objective. Debt funds invest in debt and money market instruments like debentures, bonds, treasury bills, government loans, certificate of deposits, commercial papers etc. Debt funds may not offer returns as high as equity funds, they most aim at offering stable returns with minimum investment risk.
What are Banking & PSU funds?
As of now that are close to 15 product categories under debt funds and Banking & PSU funds is one of them. Banking & PSU funds are open ended debt schemes which invest a majority of their investible corpus in debt instruments of banks, Public Sector Undertakings (PSUs) and Public Financial Institutions. These are considered to a safe investment option as compared to other mutual fund schemes because their investment portfolio consists of bank and PSU securities.
Benefits of investing in Banking & PSU Funds
According to the guidelines set forth by market regulator SEBI (Securities and Exchange Board of India), a banking and PSU fund must allocate a minimum of 80 percent of its total assets to debt instruments of banks, Public Sector Undertakings (PSUs) and Public Financial Institutions. Here are some of the primary benefits of investing in a Banking & PSU fund:
These funds offer immense liquidity
Banking & PSU Funds are optimum for anyone seeking stable returns over the course of next one or two years. As mentioned earlier, Banking & PSU Funds invests majorly in AAA rated bonds, GOI securities, debenture, CBLO etc. Since the invest in top rated securities, Banking & PSU funds are known to have a high liquidity rate. The underlying securities of these funds are frequently traded which means that Banking & PSU funds can generate stable fund returns. Fund managers take advantage of the liquidity factor to help the scheme earn capital appreciation when interest rates fall.
Low investment risk
Banking & PSU Funds invest in securities and bonds that have a high credit rating. This makes them a low risk investment option as compared to other debt funds that invest in AA- or securities with a low credit rating. A scheme that invests in high rated bonds is less likely to have a credit risk. Although these funds aren’t entirely risk free, they are ideal for anyone who wish to invest in debt fund whose underlying securities mature over the short to medium term.
Who should invest in Banking & PSU Funds?
If you are someone who has been investing in conservative schemes for a very long time and unhappy with the kind of returns, they are generated over the years, you can consider switching to Banking & PSU Funds. Banking & PSU Funds are also an ideal investment option for anyone who has a short term investment horizon. Investors with an equity heavy portfolio seeking diversification too can consider investing in Banking & PSU Funds. Banking & PSU Funds are better than bank Fixed Deposits as they offer returns better than FDs but aren’t obliged to lock-ins unlike bank FDs.
If you are new to mutual fund investing, please understand that every scheme has a unique investment objective which it tries to achieve over a stipulated time period. Only consider investing in a scheme whose investment objective holds the potential to help you achieve your life’s financial goals.
