Amidst India’s dynamic mutual fund landscape, one category stands out for its distinctive traits and investment potential –PSU Equity Fund. These funds are centred on public sector undertakings (PSUs), which give investors a unique chance to access stable, growth-oriented, government-backed companies. This blog takes a comprehensive look at PSU Equity Funds, uncovering their distinctive features, benefits, and more.
Understanding PSU Funds & Its Features
These are open-ended types of debt funds that primarily focus on investments in banks, public financial establishments, and public sector undertakings, as categorised by SEBI.
Below are its notable characteristics:
- PSU funds allocate approximately eighty per cent of their assets to banks and PSU companies, as implied by their name.
- They predominantly invest in various debentures, bonds, and deposit certificates.
- These funds are suitable for small-risk investors seeking bigger returns than conventional investment schemes.
- PSU funds and Banking primarily invest in AAA-rated or matching debt instruments.
- The semi-sovereign status secures repayment, combining ultra-short-term fund risks with the return prospect.
- Experienced investors seeking less volatility and a stable credit account often prefer investing in these funds.
- In addition to PSU funds, investors can also consider PSU equity funds, focusing on stocks of PSU companies listed on the stock exchanges.
Who May Invest in PSU?
These mutual funds in India attract a broad spectrum of investors due to their low-risk nature.
- As debt funds, they exhibit low volatility, making them suitable for traditional investors seeking steady returns.
- Investors seeking higher returns compared to bank deposits favour PSU funds for secure characteristics.
- Those interested in investing in debentures opt for quality liquid funds.
- PSU funds are well-suited for investors who want to temporarily invest their funds, as they typically have a one to two-year maturity period.
PSU Equity Mutual Funds
As per the name, these mutual funds focus on investing in stocks of public-sector companies listed on stock exchanges. These funds are categorised predominantly as investments in government companies.
The government undertook divestment initiatives with the advent of financial liberalisation, leading to the listing of numerous PSU companies on stock exchanges. Investors can purchase shares of these companies directly.
Is It Worth Investing in PSU?
Conduct thorough market research before making any investment decisions. PSU sectors have experienced sluggish performance recently, primarily due to their perceived inefficiency. Many private companies have gained market share or posed stiff competition, impacting the performance of banking companies and PSU.
Given their mediocre performance, some investors may hesitate to invest in these funds. However, certain organisations, particularly those classified as ‘Maharatna’ and ‘Miniratna,’ have accomplished better and generated favourable ROI.
For investors considering PSU equity mutual funds, it is advisable to opt for multi-cap funds. These funds provide exposure across various industry categories, offering diversification and potentially mitigating risks associated with investing solely in PSU stocks.
PSU Funds: Benefits
High Liquidity
PSU funds boast high liquidity. They invest in high-rated instruments from NABARD, PSU companies, and SIDBI. That makes them attractive options for short-term investments, offering easy access to funds.
Low Risk
PSU funds are renowned for their low market volatility risk, making them popular choices for medium-term and short-term investments. However, while they carry lower risk than funds like Dynamic Bond or Credit Risk, they are not entirely risk-free.
High Liquidity
Banking and PSU funds boast high liquidity. They invest in top-rated debt instruments from PSU companies, NABARD, and SIDBI. That makes them attractive options for short-term investments, offering easy access to funds.
Enhanced Returns Compared to Bank Deposit
Investors looking for steady returns and willing to accept moderate risk often turn to PSU funds, which generally yield slightly higher returns than bank deposits. Additionally, these funds offer shorter tenure options compared to fixed deposits, making them attractive alternatives for investors seeking safety and finding better prices during debt crises.
Final Word
PSU Equity Fund offers investors a unique opportunity to participate in the growth story of government-backed companies across various sectors. With its stable dividend income, potential for capital appreciation, and diversification benefits, these funds can be a valuable addition to an investor’s portfolio.
However, investors must conduct thorough research, assess their risk appetite, and choose funds that align with their investment objectives and financial goals.