Top Performing Banking and PSU Debt Mutual funds to Invest in India –| North Loop Official Blog
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28 Oct 2020

Top Performing Banking and PSU Debt Mutual funds to Invest in India –

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What are Banking and PSU Debt Funds?

Banking and PSU Debt funds invest at least 80% of their corpus in debt instruments issued by banking and other public sector companies. They are types mutual funds that help in generating long term capital in a relatively shorter period and are popular among investors as they provide, nominal risks associated with the total investment. These funds lend only to banks and public sector companies and provide an opportunity to invest in the main sectors of the market. Since these funds lend only to the high quality of borrowers with a good credit rating, they face minimal risk of default and prove to be a safe investment option.

Benefits of investing in Banking and PSU Debt Funds -

The benefits of investing in PSU and banking debt funds are as follows - These funds are highly liquid and also generate stable returns. Since PSU bonds are well traded, and fund managers can gain from capital appreciation opportunities when rates fall, they provide additional benefit if you are seeking returns within one or two years.

They carry a low risk of market volatility as they invest in high credit quality funds. Also, even though they are not 100% risk-free, they carry lower risks than many other debt funds.

These funds become a suitable alternative to fixed deposits as they can provide slightly higher returns in a short tenure. However, you can invest in high-interest rate fixed deposits (7.50%) with a digital service provider like North Loop.

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Limitations -



High NAV
Short investment tenure

Who should invest in Banking and PSU Funds?

Since these are primarily debt mutual funds that focus on debt instruments issued by public sector undertakings and centralised scheduled banks, they have nominal risks. So if you are a risk-averse investor, investing in these debt mutual funds can be a suitable option for you. If you opt for the dividend payout option, you can realise gains through periodic yields, and if you go for the growth option, you get to enjoy capital gains through increased NAV on resale.

Moreover, you can consider this investment option if you are an aggressive investor with a portfolio focused on equities or other risky assets and are looking to diversify or allocate a part of your portfolio towards investment options that can mitigate your overall risks. During unprecedented marketdownturns and volatility, money deposited in some of the best debt mutual funds can help you provide considerable returns and compensate for the lower earnings from the other risky assets. As you can understand, the primary objective behind investing in these options is the preservation of corpus. Even though the debt fund returns can be lesser than that earned through equity tools, the security offered by them can prove to be beneficial for preserving the entire portfolio amount. Alternatively, if you prefer low-risk factors and are comfortable with corresponding average debt fund returns, even then you can opt for this investment option.

Top 10 Banking & PSU Funds to Invest in 2020 -

The best debt mutual funds include the SBI debt mutual fund, Axis mutual fund, Nippon mutual fund etc. Some of the others and their three-year returns are as follows -
   
Fund’s   Name   
   
3   Year Returns (%)   
   
Edelweiss Banking & PSU   Fund   
   
9.73   
   
Franklin Banking & PSU   Debt Fund   
   
9.54   
   
Axis Banking & PSU Debt   Fund Direct   
   
8.88   
   
Kotak Banking & PSU Fund   Direct   
   
8.83   
   
SBI Banking & PSU Debt   Fund   
   
8.81   
   
ABSL Banking & PSU Debt   Fund   
   
8.71   
   
Nippon India Banking &   PSU Debt Fund   
   
8.70   
   
IDFC Banking & PSU Debt   Fund   
   
8.68   
   
PGIM Banking & PSU Debt   Fund   
   
8.63   
   
LIC Banking & PSU Debt   Fund   
   
8.61   

Things to be considered before investing in popular funds like the SBI debt mutual fund are -

Financial Goal- It is crucial to evaluate the funds objective before making any investment decisions. Experts always recommend choosing funds that get best aligned with your personal financial goals.

Fund Performance -Analysing and observing the past performance of a fund can help in selecting a reliable one. Moreover, measuring the performance in both bullish and bearish market situations can aid in choosing funds that perform well consistently.

Fund House & Management - Fund houses and managers play a critical role in the allocation of assets and the selection of stocks. Experienced fund managers can select funds that can deliver promising returns even during market downturns. Therefore, choosing the right fund houses amongst the numerous options of asset management companies can prove to be beneficial.

Costs involved - It is also necessary to review the various costs associated with mutual fund investments such as the expense ratio, entry load and exit load.

Others - Some other factors that should get considered when choosing the best debt mutual funds include the fund NAV, AUM, etc. These can help in ascertaining the fund's reliability and investor engagement.

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This publication is provided for general information purposes only and is not intended to cover every aspect of the topics with which it deals. It is not intended be advice. You must obtain professional advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax, investment or other professional advice from North Loop or its affiliates. We make no representations, warranties or guarantees, whether express or implied, that the content in the publication is accurate, complete or up to date. All opinions expressed do not reflect the views of North Loop nor are endorsed by North Loop.