A PSU Debt Fund stands for Public Sector Undertakings Debt Fund. As the name suggests, such funds are aimed at providing the investor with an opportunity to invest in the major sectors of the market. These funds are the type of mutual funds that are to generate long term capital in a relatively short period of time through debt funds.
Funds that cater to the companies and institutes investing in banking facilities and services are known a banking funds. These operate through the medium of the equity funds. Such funds are usually preferred because of the high returns associated with it. The rate of returns may go up to double digits.
The investor’s money is put into bonds and debentures issued by banking institutions and Public Sector Undertakings. Such PSU funds are owned by the Government of India. Therefore, these funds have the highest credit rating.
The credit quality is generally rated as an AAA to an AA+. This signifies that investment in such funds is usually safer than other forms which have a rating below these. It possible for the AAA institutions to provide funds at an interest rate lower than usual institutions.
Unlike stocks, PSU and Banking Funds are invested in as mutual funds. Due to the money invested as a pooled sum, it is easier to study the supply-demand side. Therefore, it has an assured return to some extent.
As mentioned above, the rate of return on your investment can go up to double digits. This occurs because these funds are of companies that are partially owned by the Government of India.
The Government has a minimum of 51 percent voting rights. The money is put into a diversified portfolio with a minimum of 20 percent invested in other money instruments. The primary fund is a debt fund, which has a relatively lower risk than equities.
The primary benefit of the government owning is the advantage of accountability. In case of any mismatch in the balance sheet, the government is to account for repayments.
Notice that every company or organization is accountable to portray a good image in front of the rest to find more investors. Moreover, the government would try harder to achieve the same level of attractiveness amongst the investors.
Therefore, any form of bad debt is to be repaid.
Diversification is one of the primary reasons and benefits an investor can obtain while investing in Mutual funds. Not only does it let one enjoy the varying rates for different periods of time, but it also helps in diluting the level of risk involved.
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Mutual funds may work for a long period, for instance in debt funds. Even if an investor wishes to look and wait for a short period of time, he/she has the option to do through equity funds. Equity funds enable an investor to put in money at a higher risk in return of an expected higher return.
In addition to that, these bonds and debentures usually yield high in the aspect of liquidity. These funds provide returns efficiently and in a convenient manner unlike other options available in the bond market.
Also Read: 10 Tips to Invest in Mutual Funds
Even though investing in such funds may lead to higher returns, it is still tempting. Therefore, it is advised to invest in these only if you have prior and sufficient information regarding equity funds.
Equity funds are highly susceptible to shocks and varying prices. Therefore, people who have the appetite to digest and bear risk should invest in these equities.
If you wish to invest in PSU debt funds, you may opt for bonds or debentures in Highways, food, health, education etc. You should observe that there are mutual funds being offered by private companies like Kotak, Aditya Birla, Reliance Group etc.
However, the money is invested in public sectors and financial institutions. In addition to that, the Government enjoys voting rights in such areas which adds to the desirability.
Nevertheless, it is absolutely crucial to analyze how the market and prices work. Recently, there was an increase in the market prices which led to the appreciation of capital.
For the same reason, fund managers are constantly shifting the investments from a short term to the long term and vice versa. The interest rates control the entire market, thus making it undoubtedly necessary to study it.
Disclaimer: The views expressed in this post are that of the author and not those of Groww