Banking and PSU Funds are debt mutual funds that invest mainly in bonds issued by banks, public sector undertakings (PSUs), and government-backed financial institutions. These issuers generally have strong credit profiles, making this fund category a preferred choice for investors seeking stability, safety, and predictable returns.

These funds earn returns through interest income from high-quality debt instruments. Fund managers actively manage portfolio maturity and duration based on interest rate trends, inflation outlook, and RBI policy decisions. Due to their focus on well-rated issuers, credit risk remains relatively low.

• High exposure to AAA and strong-rated bank and PSU debt
• Lower credit risk compared to most corporate debt funds
• Moderate sensitivity to interest rate movements
• Professionally managed portfolios
• Suitable for short- to medium-term investment horizons

Banking and PSU Funds are ideal for investors who want a safe alternative to traditional fixed-income options with the potential to earn slightly better market-linked returns. They are especially useful during volatile market conditions when capital protection is a priority.

• Strong credit quality ensures better capital safety
• More stable returns compared to high-risk debt funds
• Better liquidity than many traditional investment options
• Can deliver superior post-tax returns versus bank FDs
• Helps balance risk in a diversified investment portfolio

While relatively stable, these funds are still affected by interest rate changes. Returns are not guaranteed and may be lower than equity or credit risk funds. Sector concentration in banking and PSU debt may also limit diversification.

These funds are best suited for conservative investors, first-time mutual fund investors, and those with short- to medium-term financial goals who prefer lower risk with steady income.

Banking and PSU Funds follow standard debt mutual fund taxation rules. Capital gains are taxed as per the investor’s applicable income tax slab rate. Any income received is also taxed according to prevailing tax laws.