Public sector undertakings (PSUs) in India have seen significant growth over the past few years. With continuous government support and expanding businesses, the PSU sector has emerged as a ripe investment opportunity as well. A PSU mutual fund can help investors easily gain exposure to the sector and be a part of this growth story. Let’s take a look at some of the best PSU mutual funds and the pros & cons of investing in them.
PSU mutual funds invest in equity, debt, or a mix of PSU securities. A PSU is a public sector undertaking. The government holds over 51% of the controlling share in a PSU. PSU companies span across various sectors and industries, from power, banking, infrastructure, defence, and energy.
A PSU mutual fund invests in the securities of these companies to capitalise on the growth in this sector and generate returns. PSU mutual funds build portfolios by investing in the securities of PSU companies across industries.
However, depending on the mutual fund and the fund manager’s strategy, the fund may invest in a specific sector or theme. For instance, a PSU banking mutual fund may invest more heavily in PSU bank securities.
Here are some key pointers that can help investors know if a PSU mutual fund is suitable for them:
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| Fund Name | Category | Risk | NAV | Expense Ratio | 1Y Returns | 3Y Returns | 5Y Returns | Rating | Fund Size (in Cr) | Exit Load |
|---|---|---|---|---|---|---|---|---|---|---|
Invesco India PSU Equity Fund | Equity | Very High | 77.77 | 0.9 | 10.8% | 29.9% | 29.0% | -- | ₹1,444 | Exit load for units in excess of 10% of the investment, 1% will be charged for redemption within 1 year. See more |
SBI PSU Fund | Equity | Very High | 36.96 | 0.84 | 11.6% | 29.1% | 30.3% | -- | ₹5,762 | Exit load of 0.50% if redeemed within 30 days. |
ICICI Prudential PSU Equity Fund | Equity | Very High | 21.94 | 0.88 | 7.7% | 27.7% | NA | -- | ₹1,930 | Exit Load 1% if redeem before 1 month from the date of allotment. See more |
Aditya Birla Sun Life PSU Equity Fund | Equity | Very High | 37.54 | 0.61 | 11.1% | 27.1% | 30.3% | -- | ₹5,658 | Exit load of 1% if redeemed within 30 days. |
Quant PSU Fund | Equity | Very High | 10.51 | 1.1 | 2.5% | NA | NA | -- | ₹567 | Exit load of 1%, if redeemed within 15 days. |
Kotak BSE PSU Index Fund | Equity | Very High | 9.18 | 0.39 | 11.2% | NA | NA | -- | ₹78 | - |
Groww Nifty India Railways PSU Index Fund | Equity | Very High | 9.53 | 0.47 | NA | NA | NA | -- | ₹47 | Exit load of 1%, if redeemed within 30 days. |
PSU companies are owned mainly by the government. As a result, government policies have a significant impact on the businesses and performance of PSU companies.
Investors should consider their investment objectives, such as their investment horizon, risk profile, and investment philosophy, before investing. A PSU mutual fund can carry higher risk and is suitable for investors with higher risk tolerance.
When picking a PSU mutual fund, it is important to understand the fund’s strategy, as this can help investors determine which sectors the fund is investing in and how it aims to generate returns. Investors should also compare the past performance and the fund manager’s track record before investing.
Before deciding to invest in a mutual fund, an investor should compare costs and charges, including the expense ratio, exit load, and transaction charges. Comparing these costs with those of similar funds can help investors choose a more cost-effective option.
One of the key benefits of investing in a PSU mutual fund is that the companies are government-backed and offer greater stability. Many PSU companies are well-established and operate on a large scale, which provides more credibility and accountability.
Several PSU companies have a track record of paying regular dividends. Investing in a PSU mutual fund can help investors generate regular income through dividends.
A PSU mutual fund can help investors diversify their portfolio. Including government-backed and privately owned companies in a portfolio can help spread risk.
PSU companies have the potential to outperform the market and generate higher potential returns. Investing in a PSU mutual fund can help investors capture this growth.
PSU companies are highly sensitive to changes in policy, political regime, news, or any events. Any unfavourable changes in the policy can impact the performance of the PSU sector.
The performance of a PSU mutual fund is closely tied to the economic cycles. While investing at the start of an expansion cycle can be favourable, investing at the peak or during a downturn can lead to lacklustre performance.
PSU mutual funds may invest in a specific sector or theme. A lack of diversity and concentration in a single sector exposes the fund to more risks. The performance of the entire fund can be negatively affected by downturns in a particular sector.
Short-Term Capital Gains: Gains from selling PSU Fund units within three years are taxed as per the investor’s income tax slab.
Long-Term Capital Gains: Earlier, gains on units held for over three years were taxed at 20% with indexation. For units purchased on or after April 1, 2023, this no longer applies. Such gains are added to total income and taxed at slab rates.
Dividend income: Dividends earned from PSU Debt Funds are fully taxable in the hands of the investor, as per their applicable income tax slab.
A PSU mutual fund invests in the securities of PSU companies. PSU companies are companies in which the government has more than 51% ownership.
Investing in a PSU mutual fund offers exposure to various PSU companies across sectors with higher growth potential. These companies are government-backed, making them more stable and they also have a track record of regularly paying dividends.
Although PSU companies are relatively stable, they are sensitive to government policies, market conditions, and economic cycles. It is suitable for investors with a higher risk profile.
PSU mutual funds can be suitable for beginners. However, it is important to consider the macroeconomic and government outlook before investing.
The ideal investment horizon for PSU mutual funds is over 5 years.
Gains from selling PSU Fund units within 3 years are taxed at the investor’s income tax slab. Earlier, units held for over 3 years qualified for long-term capital gains tax at 20% with indexation, but this benefit no longer applies to units bought on or after April 1, 2023. These gains are added to total income and taxed at slab rates. Dividends from PSU Debt Funds are also fully taxable according to the investor’s income tax slab.
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Fund Performance: The Invesco India PSU Equity Fund has given 29.88% annualized returns in the past three years and 29.01% in the last 5 years. The Invesco India PSU Equity Fund comes under the Equity category of Invesco Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Invesco India PSU Equity Fund via lump sum is ₹1,000 and via SIP is ₹500.
| Min Investment Amt | ₹1,000 |
|---|---|
| AUM | ₹1,444Cr |
| 1Y Returns | 10.8% |
Fund Performance: The SBI PSU Fund has given 29.13% annualized returns in the past three years and 30.3% in the last 5 years. The SBI PSU Fund comes under the Equity category of SBI Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in SBI PSU Fund via lump sum is ₹5,000 and via SIP is ₹500.
| Min Investment Amt | ₹5,000 |
|---|---|
| AUM | ₹5,762Cr |
| 1Y Returns | 11.6% |
Fund Performance: The ICICI Prudential PSU Equity Fund comes under the Equity category of ICICI Prudential Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in ICICI Prudential PSU Equity Fund via lump sum is ₹5,000 and via SIP is ₹100.
| Min Investment Amt | ₹5,000 |
|---|---|
| AUM | ₹1,930Cr |
| 1Y Returns | 7.7% |
Fund Performance: The Aditya Birla Sun Life PSU Equity Fund has given 27.13% annualized returns in the past three years and 30.29% in the last 5 years. The Aditya Birla Sun Life PSU Equity Fund comes under the Equity category of Aditya Birla Sun Life Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Aditya Birla Sun Life PSU Equity Fund via lump sum is ₹500 and via SIP is ₹100.
| Min Investment Amt | ₹500 |
|---|---|
| AUM | ₹5,658Cr |
| 1Y Returns | 11.1% |
Fund Performance: The Quant PSU Fund comes under the Equity category of Quant Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Quant PSU Fund via lump sum is ₹5,000 and via SIP is ₹1,000.
| Min Investment Amt | ₹5,000 |
|---|---|
| AUM | ₹567Cr |
| 1Y Returns | 2.5% |
Fund Performance: The Kotak BSE PSU Index Fund comes under the Equity category of Kotak Mahindra Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Kotak BSE PSU Index Fund via lump sum is ₹100 and via SIP is ₹100.
| Min Investment Amt | ₹100 |
|---|---|
| AUM | ₹78Cr |
| 1Y Returns | 11.2% |
Fund Performance: The Groww Nifty India Railways PSU Index Fund comes under the Equity category of Groww Mutual Funds.
Minimum Investment Amount: The minimum amount required to invest in Groww Nifty India Railways PSU Index Fund via lump sum is ₹500 and via SIP is ₹500.
| Min Investment Amt | ₹500 |
|---|---|
| AUM | ₹47Cr |
| 1Y Returns | NA |
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