Banking & PSU funds have become popular in the last one year. Their size has more than doubled since then. The category manages assets worth ₹96,816 crore as on June 30. These funds by nature are less risky among the debt fund categories. Sebi defines a Banking & PSU Funds as an open-ended debt scheme predominantly investing in debt instruments of banks, public sector undertakings and public financial institutions. A Banking & PSU fund has to invest a minimum of 80% of its total assets in the public sector undertakings.
These funds primarily invest in top-rated instruments of the debt market – bonds and debentures issued by Banks, PSUs and PFIs. Some common examples of securities held by the category include NABARD, Indian Railway Finance Corporation, Food Corporation of India, Export Import Bank of India, National Highways Authority of India, Gail, NHPC, NTPC, Power Finance Corp and Power Grid Corporation of India.
Comparing Banking & PSU fund to equity funds is an apple to orange comparison. But it is interesting to know that given the recent times of high volatility in debt market and Covid 19 outbreak, the category has fared better than most equity fund categories except a few sectoral mutual funds.
In the last one year, the category on an average has given 11.05%. In five years, it has given 8.62%. This category has outperformed all debt fund categories as well, except long duration funds in the last one year.
All gains arising on investments held for over three years are taxed at 20% after providing for indexation. Short term capital gains are taxed as per the applicable slab rate.