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Are PSU Funds A Good Investment Option?

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03 Aug 2023

Introduction

As you set sail on your financial journey, one question stands before you: Are PSU funds the key to prosperity? PSU equity funds provide access to government-owned public sector companies and bank stocks, appealing to risk-averse investors due to their relative safety. 

However, before investing in PSU mutual funds, it is essential to assess their alignment with your overall financial goals. In this blog, we will discover the potential and risks of these funds so that you can make an informed decision. 

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What are PSU Funds?

PSU funds are versatile debt funds that mainly invest in public sector undertakings, banks, and public financial institutions, as classified by SEBI. They offer a low-risk option with higher returns than traditional investments. These funds focus on AAA or equivalent debt instruments, providing seasoned investors with a stable credit profit with reduced volatility. Furthermore, investors can opt for PSU equity mutual funds that invest in PSU company stocks, offering an open-ended equity fund alternative. 

Who Invests in PSU Funds?

PSU Funds attract a diverse range of investors due to their low-risk nature. Conservative investors seeking steady returns find appeal in these debt funds, as they offer better returns than traditional bank deposits. Additionally, those interested in investing in high-quality and liquid debentures opt for PSU funds. They serve as an ideal short-term investment option with 1-2 years of maturity.

What are the Features of PSU Funds?

The features of PSU funds are:

  • PSU Funds, particularly banking and PSU debt funds, are highly favoured in the mutual fund landscape due to their low-risk profile.
  • These funds primarily invest around 80% of their corpus in debt instruments like debentures, bonds, and certificates of deposit.
  • They focus on Maharatna and Navratna companies known for substantial gains, ensuring a minimum AAA-credit rating from top agencies.

What are the Advantages of PSU Funds?

The advantages of PSU funds include low risks due to their focus on debt securities, ensuring relatively high credit ratings by top agencies. Moreover, investments in PSU banking sectors are backed by the Government of India, providing superior security for investors.

What are the Risks associated with PSU Funds?

PSU funds, specifically banking and PSU debt funds, are made up of debt instruments from public sector companies and top-performing banks. This combination leads to minimal investment risks, as the corpus is backed by the central government. Moreover, debt funds inherently carry lower risk levels, making them a secure and easy-to-understand investment option.

Conclusion

PSU funds, especially banking and PSU debt funds, offer a secure investment avenue with minimal risks and government backing, making them an attractive choice for conservative investors.

 

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