A Banking & PSU Fund invests at least 80% in debt instruments from banks, Public Sector Undertakings (PSUs), and public financial institutions — combining high credit quality with better yields than pure g-sec funds.
Banking & PSU funds focus on bonds and debentures issued by commercial banks and PSU companies like NTPC, Power Finance Corporation, Indian Railway Finance Corporation, and National Highways Authority of India. These institutions carry quasi-sovereign credit quality — the government implicitly backs them, making defaults extremely rare. The yield premium over actual government securities makes these funds attractive for risk-conscious debt investors.
Banks and PSUs (government-owned companies) borrow money by issuing bonds. A Banking & PSU fund lends your money to them. Because these are major banks (SBI, HDFC Bank) and government-backed companies, the credit risk is very low — almost like lending to the government but with slightly better interest. A good choice for the debt portion of a long-term portfolio.
≥80% in bonds/debentures of banks and PSUs.
Remaining 20% may include other instruments at manager's discretion.
Duration varies — typically 2–5 years, giving moderate interest rate sensitivity.
High credit quality typically: mostly AAA and AA+ rated bonds.