Banking & PSU Funds – Who should consider investing?

Every individual is striving hard, giving their cent percent at work so that they can improve their existing wealth. The problem with most individuals is that they do not invest enough because they fear that they might lose their money to market volatility. Honestly speaking, it is not even safe to keep your money in the savings account. In the recent past, several banks have shut down, raising fear among individuals, and making them fear for the safety of their money. Why do you want to let your money sit idle in your savings account when you can invest that and earn long term capital appreciation?

The Indian investor has a plethora of investment products to choose from. Depending on your risk appetite you can consider whether you want to invest in conservative schemes or invest in market linked schemes like mutual funds. Although schemes like bank FDs guarantee fixed returns, investors may not be able to achieve much with the invested amount. That’s because FD rates have gone down to 4-5 percent. With such low interest rates, it becomes almost impossible to target long term goals like building a retirement corpus or planning your children’s future. Those who carry moderate to low risk appetite, such individuals can invest in debt funds like banking and PSU funds.

What is banking and PSU fund?

According to market regulator SEBI (Securities and Exchange Board of India) a banking and PSU fund must invest a minimum of 80 percent of its total assets in bonds, debentures, and certificate of deposits. A banking and PSU fund generally invest in public sector banks that are under the patronage of the Government. Such banks are considered much safer investment option than private sector undertakings. The investment objective of such schemes to offer stable returns while offering high liquidity and investing in securities that have low maturity period. Although banking and PSU funds cannot be completely deemed risk free, they are ideal for medium / short term investment and are considered much safer than other debt funds.

Who should consider investing in banking and PSU funds?

Investors who wish to earn capital appreciation by investing in mutual fund schemes but do not wish to invest in high volatile schemes like equity mutual funds, they can consider investing in banking and PSU funds. Banking and PSU funds may not offer high capital appreciation like equity mutual funds, they can offer steady capital appreciation. Also, returns from mutual fund investments, be it equity or banking and PSU, are not guaranteed. Investors should determine their risk appetite, discuss their financial goals with their fund manager and make an investment decision.

If you have are unhappy with your existing investments, or if you have invested in low interest rate offering investment schemes like bank FDs you can invest in banking and PSU funds. These are relatively low risk investment schemes which invest in financial institutions, public sector banks and similar securities which have low maturity and high liquidity.

Decide which investment option is more feasible for you

If you have lumpsum cash parked or have recently inherited, you can make a onetime lumpsum investment. However, if you wish to inculcate the discipline of systematic, regular investing you can consider starting a monthly SIP in a banking and PSU scheme of your choice. Systematic Investment Plan ensures that you save and invest a small fixed amount at periodic intervals (typically every month). SIPs are flexible which means you can increase or decrease your monthly SIP amount that suit your income needs.

If you are new to financial planning or mutual funds in general, consult a financial advisor before investing.