What are banking and PSU funds?

Banking and PSU funds are debt mutual funds that invest at least 80% of their funds in banking and public sector undertaking’s debt instruments. The investments are made in low maturity instruments which have high liquidity. Large-cap banking companies, PSU, and public financial institutions are selected by these funds, generally with AAA ratings. This makes banking and PSU fund safe and steady investment options, with limited exposure to market volatility.

PSU funds

Who should invest?

Banking and PSU mutual funds are preferred by investors looking to preserve their corpus. Investors who are not keen on risky investments are better suited to invest heavily in a banking and PSU fund SIP. As centralized banks and PSUs have the government’s backing, these funds have little risk. Besides, these mutual funds invest in debt instruments issued by these companies. Debt instruments are safer than equity instruments, thus further lowering the risk.

Investors looking for a payout option on their mutual fund investment can invest in banking and PSU funds. This can balance against their growth fund investments where they plan to earn capital gains through increased NAV. Investors looking to set off their equity exposure can also invest in banking and PSU funds. These mutual funds can provide a steady return in times of market slowdown.

Why invest in them?

The primary reason for buying them is their low risk. Fund managers select safe and stable company debt securities to invest in. You can also get good ratings for banking and PSU mutual funds, as the underlying investments are robust government-backed enterprises. Due to the government backing, the default risk in these investments is low, which makes them a popular SIP choice among debt mutual funds.

What to keep in mind?

Banking and PSU funds are debt funds; therefore, the return is stable but not astronomical. The investor’s financial goal is essential in deciding the portion of investment in this fund. If the plan needs more aggressive investment, combining it with high equity-based investment would be beneficial.

There are numerous fund schemes within this category. The fund schemes’ past performance, investments, and return consistency are essential criteria for deciding the fund.

A comparison of the expense ratio is also essential. A higher expense ratio can reduce your return from the SIP investment in banking and PSU funds or any mutual fund for that matter. Entry and exit load and management fees are other costs to be considered.


With the Tata Capital Moneyfy App, you can compare all available banking and PSU funds. You can also find out more about individual funds in the Moneyfy App, which will help you select one of the better ones. With the right banking and PSU fund, you can add more income stability and safety to your investment portfolio.


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