Introduction

Mutual funds that are solely invested in government-owned companies are Public Sector Undertakings or PSU mutual funds as they are commonly called. This segment includes companies involved in varying sectors, such as banking, energy, finance, manufacturing, and transport. By investing in PSUs, these funds capitalise on the stability and growth potential associated with government backing.

A primary characteristic of PSU mutual funds is they are thematic. It means they focus on a specific segment or theme; in this case, the theme is public sector undertakings. Their narrow focus accounts for higher returns, especially during periods of economic growth.

During the last year, PSU stocks have emerged as strong performers in the Indian financial markets, with some delivering over 100% annual returns. In this article, you will be introduced to the top-performing PSU mutual funds, their benefits, and some factors to consider.

Top Performing PSU Mutual Funds

Here are the top four PSU mutual funds that exceeded 100% returns within a year.

CPSE ETF

A government undertaking was launched in 2017 to disinvest its stakes in Central Public Sector Enterprises (CPSEs) through the creative route of Exchange Traded Funds (ETFs), creating the CPSE ETF. This passive investment fund offered 121.8% within a year of its market existence. The key feature of this fund, which results in the outstanding returns delivered, is primary focus on equities spread across various sectors such as energy, capital goods, materials, and construction.

SBI PSU Fund

This fund, which invested in PSUs across different sectors, returned 107.66% within the first year of its market presence. Its robust returns are due to a well-diversified portfolio and incredible stock selection by the fund manager. The key features of this fund include leveraging SBI's well-rounded research capabilities, selecting value and growth stocks, and engaging in active management with scope for tactical allocation.

Aditya Birla Sun Life PSU Equity Fund

The one-year return of 100.17% makes this relatively new entrant in the PSU fund category a force to be reckoned with. The key features responsible for the stellar performance include the fund manager's knack for selecting companies that benefit from government initiatives. With a strong record in thematic investing, this fund focuses on avenues for market capitalisation within the PSU sector.

Invesco India PSU Equity Fund

This consistently performing PSU mutual fund delivered a 104.42% annual return. Its innovative and diversified portfolio consists of undervalued stocks with a high growth potential. Key features responsible for Invesco India PSU Equity Fund's brilliant returns include the selection of PSUs with strong growth prospects. This actively managed fund offers the needed scope for rapid portfolio adjustments allowing it to leverage on the market trends.

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Reasons for High Returns

The following factors are associated with the incredible returns delivered by PSU mutual funds.

• Increased government support through reforms and initiatives geared at improving PSU performance has increased investor faith in these stocks, leading to their popularity and demand.

• Most PSUs were overlooked, resulting in their undervaluation. However, the ongoing market correction has increased the stock prices of these companies.

• India's robust economic growth has had a favourable effect on PSUs because they often operate in core sectors that contribute to the growth.

• All the above, coupled with the government's disinvestment initiative, sector-specific booms, and increased retail investor participation, have improved the performance of PSU stocks.

Reasons to Invest in PSU Mutual Funds

Here are the different benefits of investing in PSU mutual funds.

• Since PSUs are either wholly or partially owned by the government, investing in their securities offers stability and reduces risk exposure.

• PSU mutual funds offer instant exposure to a well-diversified investment portfolio across various sectors.

• PSUs benefit from government initiatives and reforms and offer high levels of transparency that can be reassuring to investors.

• These funds offer low expense ratios and have a consistent track record for dividend payments.

• Most PSU stocks are undervalued even when they have high growth potential. Investing in PSU mutual funds helps capitalise on this overlooked potential and reap high returns.

• By investing in such funds, investors can directly invest in different PSUs without individually choosing stocks.

• Since these funds indirectly invest in a country's infrastructure, they are perfect investment tools in periods of economic growth.

Conclusion

PSU mutual funds are the perfect investment vehicle for long-term investors or those well-versed in the performance of different sectors. According to the prevalent economic conditions, different sectors can go in and out of fashion. So, timing your entry and exit matters. Once again, carefully consider your risk tolerance and investment goals to avoid hasty investment decisions.

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