Are PSU mutual funds a good investment option?
Public sector undertakings (PSUs) have been a key part of India’s economy, and their mutual funds have garnered significant attention in recent times.
These funds have been performing exceptionally well, with some schemes offering good returns in the past one year. But are PSU mutual funds a good investment option?
What are PSU mutual funds?
PSU mutual funds are equity-oriented schemes that invest a minimum of 65 per cent of their assets in stocks of public sector companies.
These companies are owned and managed by the central or state governments and operate in various sectors such as energy, banking, infrastructure, and mining. The remaining portion of the fund’s assets can be invested in other equity or debt instruments.
Advantages of investing in PSU mutual funds
Government backing: PSUs enjoy the support and backing of the government, which can provide a certain level of stability and security to investors.
Potential for growth: Many PSUs operate in sectors with high growth potential, such as energy and infrastructure.
As the government focuses on economic development and disinvestment, these companies may benefit from increased investment and growth opportunities.
Dominant sectoral control and strategic significance: PSUs wield near-monopolistic control in key sectors vital to India’s economy. This highlights their strategic significance through their overwhelming presence in critical industries. This dominance provides a strong foundation for their continued growth and profitability.
Dividends: PSUs are known for their consistent dividend payouts, which can provide a steady stream of income for investors.
Risks and considerations to keep in mind before investing in PSU mutual funds
Government influence: While government backing can be an advantage, it also means that PSUs are subject to government policies and decisions, which can impact their performance.
Market risks: Like any equity investment, PSU mutual funds are subject to market risks and volatility. Investors must be prepared for potential fluctuations in the value of their investments.
Concentration risk: As PSU mutual funds invest heavily in a specific sector, they may be exposed to concentration risk. Any adverse events or policy changes affecting the public sector could have a significant impact on the fund’s performance.
Short tenure: PSU funds usually have short holding periods of 1-3 years. They may not be the right option for investors looking for long-term investments.
First Published: Jun 17 2024 | 4:22 PM IST