Best Banking & PSU Debt Fund

  • What are banking & PSU debt funds?
    Banking and PSU (public sector undertaking) debt funds invest at least 80% of their corpus in debt instruments issued by financial institutions and other public sector enterprises. The Securities and Exchange Board of India (SEBI) announced a modification in December 2017 that allows debt securities issued by municipal entities to be included in the portfolio of such a banking and PSU fund. These publicly traded corporations are generally big and have AAA ratings from the leading credit rating agencies.

Below are some of the best Banking and PSU debt fund

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  • What returns you can expect?
    Because the term of these products is short, the average return that you may expect ranges from six per cent to eight per cent. During a rising interest rate situation, the returns on these funds would suffer. However, when interest rates are rising, these are still preferable to long-term funds.
  • What are the underlying risks?
    The finest banking and PSU debt funds are made up of debt instruments issued by public sector corporations and top-performing banking institutions. As a result, the risks involved with such an investment are small because the corpus amount is backed by the central government. Furthermore, because their length is comparable to that of short duration funds, the risk is lower when compared to long duration funds.
  • What investment horizon is suited for banking & PSU debt funds?
    Banking and PSU debt funds have an average term of three years; these funds are best suited for individuals with a three-year investment horizon and who like to accept prudent risks.
  • Who should invest in them?
    A banking and PSU debt fund is a good alternative for risk-averse individuals seeking for a safe investment. Individuals who choose the dividend pay-out option can profit from timely pay-outs, whilst the growth option allows investors to profit from increasing NAV value on resale.
    Investors who are familiar with the workings of the stock market and frequently pool their money in riskier assets might opt to invest a portion of their portfolio to the finest banking and PSU debt fund, which significantly reduces the risk factor. In the event of an unexpected stock market downturn, money invested in such debt mutual funds might give significant returns to compensate for decreased returns from riskier assets.

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