For those investors who are optimistic on the banking and PSU sector landscape going ahead can definitely park their corpus for fixed income investment in this category of funds for reaping higher return than bank fixed deposits. Now, before we discuss all such top rated funds, here is in brief what investors should be mindful of:
Is It The Right Time To Invest In Banking And Debt PSU Funds?
Banking and financial services sector form the foundation of the economy. Until now the sector confronted negatives such as weak asset quality but now these parameters seem to be behind us. Moreover, provisioning for bad debts has also reduced. Now as even amid the pandemic banks in India came up with better results with lower slippages, underlying strength in the sector is reflected. Also, India Inc.'s resilience provides for a better corporate NPA cycle picture.
Pointers to note when investing in Banking and financial services fund:
These should be invested in to form the fixed income portfolio for a long term or can even be pocketed in for medium term investment. Also, the fund tends to give returns by investing in the sector (i.e. mostly bonds issued by PSUs, banks) which shows high correlation to the economy.
Economic and sectoral risk can also have an impact on the returns generated by such funds and hence investors need to be prepared for even low returns. To moderate this aspect, funds deploy funds across sub-segments.
3 Banking and Financial services fund
Now considering all the above listed sectors if you want to participate in the growth story of banking industry of India going ahead:
Here are the absolute returns of the given listed top rated banking and PSU debt funds:
|PSU and debt fund||1 yr return||3 yr return||5 yr return||Rating|
|ICICI Prudential Banking & PSU Debt Fund - Growth|
|Axis Banking and PSU Debt Fund-Growth|
|Nippon India Banking & PSU Debt fund|
1. ICICI Prudential Banking & PSU Debt Fund - Growth:
This is a 5-star CRISIL rated fund with an asset under management size of Rs. 13,920 crore. Expense ratio involved in the fund is 0.8 percent, while the fund carries moderate risk as per the mutual fund risk-o-meter.The fund has over 98% corpus invested in debt instruments and these funds primarily in bonds issued by banks, PSUs as well as PSU financial entities. The funds are able to give a better return than bank FDs.
For lump sum investment a minimum of Rs. 500 needs to be invested, while an investor can also start a SIP in the fund.SIP of Rs. 10000 monthly has grown in value to Rs. 4.04 lakh in a period of 3 years.
2. Axis Banking and PSU Debt Fund-Growth:
The 4-star CRISIL rated fund commands an exorbitant fund size of Rs. 17,077 crore. As per the risk-o-meter the fund carries low to moderate risk and the expense ratio is 0.62 percent. Over the 3-year period, the fund has yielded a good over 8 percent return. NAV of the fund as on June 30, 2021 has been 2081.48.
Minimum SIP investment in the fund can be of Rs. 1000 while on a lump sum basis, investors need to put in a minimum of Rs. 5000.
3. Nippon India Banking & PSU Debt fund:
This is a CRISIL 3-star rated and Value Research 5-star rated fund. NAV of the fund as on June 30, 2021 is 16.32. SIP investment in the fund can be started for as less as Rs. 100 and minimum lump sum investment has to be to the tune of Rs. 5000. SIP started 3 years back with a monthly investment of Rs. 10000 is now equivalent to Rs. 4.08 lakh.
Taxation of Banking and PSU Debt fund
In a case if these debt funds are held for More than 3 years then Long term capital gains 20% shall apply after providing for indexation.
Before 3 years if these mutual funds are redeemed-i.e. gains made on redeeming units are referred as Short term capital gains These gains are then added to taxable income and taxed as per individual's tax slab
For dividends, these are added to individual income and taxed as per the respective tax slab. Also, in a case if the dividend income exceeds Rs. 5000 in a fiscal year then TDS of 10% is also deducted.
Disclaimer: Note the above story is for informational purpose. Investors should consult financial advisers before taking any investment decision.