Investing in Banking and PSU funds can be a prudent choice for investors who may be long term savers and wish to get long-term returns, and for those who seek diversification within the financial sector. Banking and PSU funds may primarily invest in debt instruments of public sector undertakings, public financial institutions aiming to provide a blend of relative stability and reasonable returns. These funds offer investors the opportunity to stabilize the banking industry and government-backed public sector companies, mostly known for their established records.
Who should invest in Banking and PSU funds?
Banking and PSU funds primarily may invest in debt instruments issued by banks, public sector undertakings (PSU), and Public Financial Institutions (PFI). They may be mostly known for their steady and stable returns moderate risk profile and the high quality of the underlying debt. On a basic level, three different kinds of investors can invest in Banking and PSU funds.
First are the Conservative Investors. These are the investors who have a conservative risk appetite and are more likely to prioritize less impact volatility over aggressive capital appreciation. Such investors may find these mutual funds appropriate.
Next, we may also find retirees and income-seeking investors seeking a regular inflow of funds. They may benefit from these mutual funds. The relative stability of banking and PSU funds makes them relatively a better option for those in need of constant inflow of capital. Risk averse investors and those who prefer minimal impact of market volatility on their investment portfolio. The moderate risk exposure of these funds may be beneficial for such investors.
Benefits of banking and PSU funds
We can see that one vital advantage or benefit of investing in banking and PSU funds is the relative stability that is being offered to the investors. These funds may predominantly invest in the debt instruments of banks, public sector undertakings, and public financial institutions which may be relatively stable. Then, while no investment in mutual funds is not applicable to be termed as entirely free of risk, these funds are considered to have moderate risk exposure compared to other funds that may have high risk. Since these funds focus more on debt instruments and the backing of stable banking they contribute to a more conservative risk profile. Like many other mutual funds, even these funds are active and are managed by experienced fund managers who keep a check on the market conditions and portfolio composition accordingly.
Strategies for investment in Banking and PSU funds
- Relative stability: These funds primarily invest in assets issued by government backed entities. This relatively lowers the risk associated with market volatility.
- Return Expectations: One may expect relatively stable and predictable returns over the long term in these funds. This is viable for those who may seek a constant income flow to meet financial needs through these funds.
- Liquidity: Banking and PSU funds offer liquidity. They may invest in highly rated debt instruments, allowing the investments to be easily available without many restrictions. This is a vital feature as it may ensure that funds are accessible as and when needed by the investors.
- Tax Implications: Banking and PSU plans are said to allocate nearly 80% of the total funds towards debt assets. Therefore these are added to the investor's taxable income and the returns made no longer receive indexation benefits and are considered short term capital.
Conclusion
While investing in banking and PSU funds offer a relatively stable and potential flow of returns it is crucial that one may diversify their portfolio across various asset classes. It is also essential that one may tailor their investment strategies to align with their specific financial objectives. It may be for any life goal, but keeping in mind the long term returns and objectives is important. It is also advisable to plan these investment strategies before and early.
Disclaimer: Mutual fund investments are subject to market risks, read all scheme related documents carefully.
