Banking and PSU Fund (Hinglish) | Types of Debt Mutual Funds

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0:00: Introduction
0:50: What are banking and PSU funds?
2:13: Who should invest in banking and PSU funds?
3:42: Who should not invest in banking and PSU funds?

Let’s talk about the type of debt mutual fund that is safe and evergreen, this means you can start investing in this fund anytime you want. Yes, we are talking about banking and PSU funds. This is the 13th category of debt mutual funds. We have already discussed the previous 12 categories, watch them here.

What are Banking and PSU Fund?

Market regulator SEBI defines Banking and PSU Fund as – Banking and PSU Funds are those which invest minimum 80% in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds.

In simple terms, in these funds, 80% of the money is invested in mostly safer instruments because banks, PSUs, or public financial institutions bonds are for the most part AAA-rated.

The interesting thing about these funds is that there is no restriction on investing the remaining 20% in certain places.

Fund managers have the discretion to invest this 20% after considering the interest rate cycle and economic cycle in any suitable debt instruments. Other than that there are no restrictions in regard to the duration of investment unlike other categories where it is well defined that the investment will be made in 3 months, 6 months, 1 year, 3 year or up to 7 years debt papers.

Who should invest in Banking and PSU Fund?

New to debt MFs – If you are new to debt mutual funds and want to start investing in debt investment then Banking and PSU Fund can be a great choice that will give you stable returns.

Replacement to FD – If you have only invested in FD and want to try a new form of investment then Banking and PSU Fund could be a great option for you. Consider investing in this fund over opening a new FD.

Tax-efficient fixed income option – Unlike FD, where you are taxed on the interest you receive from the investment, Banking and PSU funds do not have that. Here, if you hold your investment for more than 3 years, then you are charged 20% tax with indexation benefit which means inflation is adjusted before you are taxed.

This is not for investors who are looking for a higher return. The core mandate here is capital preservation. Returns are secondary. So if you are expecting better returns than a FD, then that may or may not happen.

Banking and PSU Fund is a great start to create your debt investment portfolio.

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Disclaimer: These videos are for educational purposes only. Mutual fund investments are subject to market risk.