If you’re looking for a relatively safe way to invest in debt instruments while earning better returns than a savings account, Banking and PSU Funds deserve your attention. These funds primarily invest in bonds and securities issued by banks, public sector undertakings (PSUs), and other financial institutions. Since these entities are backed by strong credit ratings and government support, the risk level is comparatively low.
Banking and PSU funds are ideal for investors who want stability and moderate returns without venturing into high-risk assets. They typically suit those with a short-to-medium investment horizon, offering liquidity and predictable performance.
Banking and PSU Fund vs Stocks
While banking and PSU funds focus on debt instruments, stocks represent ownership in companies and come with higher volatility and risk. Stocks can deliver substantial returns over time, but they also expose investors to market fluctuations. In contrast, banking and PSU funds prioritize capital preservation and steady income, making them a safer choice for conservative investors or those nearing financial goals.
A balanced portfolio often includes both—stocks for growth and debt funds like banking and PSU funds for stability. This combination helps manage risk while ensuring long-term wealth creation.
Returns and Taxation
Banking and PSU funds generally offer returns in the range of 6–7% annually, depending on interest rate movements. Taxation follows debt mutual fund rules: short-term capital gains (holding period less than three years) are taxed as per your income slab, while long-term gains enjoy indexation benefits.
Banking and PSU funds are a solid choice for investors seeking safety and predictable returns. While they can’t match the growth potential of stocks, they play a crucial role in reducing portfolio risk. Pairing them with equity investments ensures a healthy balance between stability and growth.
Mutual Fund investments are subject to market risks, read all scheme related documents carefully.