Select Page

Are you looking for relatively safe debt funds to invest for a few years? You can consider investing in Banking & PSU debt funds. These schemes have the mandate to invest at least 80% of their corpus in debt investments of banks, public sector undertakings, and public financial institutions.

Mutual fund advisors say banking & PSU debt schemes are ‘relatively’ safe because these schemes invest only in bonds and papers of banks and public sector companies. Since most of these entities are government-backed, they don’t have the credit risk.

Also Read |Gold mutual funds deliver 23% return in 6 months. What should investors do?

These schemes have become extremely popular after the troubles in the debt mutual fund space three years ago. The debt market was rocked by downgrades and defaults not long ago. Many conservative investors stopped investing in debt schemes because they were scared of getting back their money.

However, this doesn’t mean that these schemes do not have any risk at all. For example, these schemes also invest in papers issued by private banks. Since they don’t have government backing, they carry some risk. However, since banks are highly regulated, the risk is minuscule. Also, interest rate changes can adversely affect these schemes.

A rising or firm interest rate environment is bad for debt funds. However, since these schemes do not invest in very long-duration papers, they will be relatively better off. Most money market pundits say the interest rates have peaked and the RBI will start cutting interest in the later part of the year. It may start cutting rates, once it is convinced that inflation is cooling off. However, be prepared for some volatility till then.

If you are investing for three years and aware of the risks associated with these schemes, you can consider investing in Banking & PSU schemes. DSP Banking & PSU Debt Fund has been in the second quartile for two months. The scheme was in the third quartile earlier. Axis Banking & PSU Debt Fund has been in the third quartile for the last five months. Look for our monthly updates to keep track of your schemes.

Also Read |Mutual funds added 23 new stocks in March. Here are top 10

Best Banking & PSU funds to invest in April 2024:

  • Bandhan Banking & PSU Debt Fund
  • Axis Banking & PSU Debt Fund
  • Aditya Birla Sun Life Banking & PSU Debt Fund
  • DSP Banking & PSU Debt Fund
  • Kotak Banking & PSU Debt Fund

ETMutualFunds has employed the following parameters for shortlisting the debt mutual fund schemes.

1. Mean rolling returns: Rolled daily for the last three years.

2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.

i)When H = 0.5, the series of returns is said to be a geometric Brownian time series. These types of time series are difficult to forecast.

ii)When H <0.5, the series is said to be mean reverting.

iii)When H>0.5, the series is said to be persistent. The larger the value of H, the stronger is the trend of the series

3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.

X =Returns below zero

Y = Sum of all squares of X

Z = Y/number of days taken for computing the ratio

Downside risk = Square root of Z

4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.

Asset size: For debt funds, the threshold asset size is Rs 50 crore

(Disclaimer: past performance is no guarantee for future performance.)

  • Published On Apr 19, 2024 at 06:00 PM IST

Join the community of 2M+ industry professionals

Subscribe to our newsletter to get latest insights & analysis.

Download ETBFSI App

  • Get Realtime updates
  • Save your favourite articles

icon g play

icon app store

Scan to download App
bfsi barcode

Share it on social networks