Amid rising investor interest in debt mutual funds as a safer alternative during volatile equity cycles, Banking and PSU Debt Funds have emerged as a consistent performer category. These funds primarily invest in debt instruments issued by banks, Public Sector Undertakings (PSUs), and Public Financial Institutions (PFIs), offering both stability and returns.
Banking and PSU debt funds are categorised as short-term debt funds that offer competitive returns with minimal risk. They primarily invest in high-quality debt instruments issued by banks and government agencies, effectively diversifying their portfolios to mitigate risk. According to SEBI criteria for mutual funds, these funds are mandated to allocate at least 80% of their assets in debt instruments issued by banking institutions and other public sector companies. Renowned for their high credit quality, Banking and PSU debt funds are considered less risky investments that strike a balance between accessibility, safety, and returns.
Top performing funds
The UTI Banking & PSU Fund – Direct Plan tops the list of banking and PSU debt mutual funds with a 5-year return of 7.71%, showcasing its market-leading performance among peers.
The UTI Banking & PSU Fund – Direct Plan has emerged as the frontrunner in the banking and PSU debt mutual funds category over the past five years, boasting a return of 7.71%. This positions it at the top of the list for investors seeking robust returns in this segment. The fund’s performance reflects its strategic allocation and effective management within the sector, which has been increasingly attracting investor interest due to its perceived stability and consistent returns.
In addition to its top performance, the UTI Banking & PSU Fund – Direct Plan maintains a competitive expense ratio of 0.32%, which is the lowest among similar funds. This factor, combined with its high returns, enhances its attractiveness to investors who prioritise cost-efficiency alongside performance.
Other funds with notable 5-year returns include the Edelweiss Banking and PSU Debt Fund – Direct Plan, ICICI Prudential Banking & PSU Debt Fund – Direct Plan, Kotak Banking and PSU Debt Fund – Direct Plan, and Aditya Birla Sun Life Banking & PSU Debt Fund – Direct Plan, each with an expense ratio of 0.39%.
Comparing the 5-year SIP returns, the UTI Banking & PSU Fund – Direct Plan again leads with 7.82%, followed by the ICICI Prudential Banking & PSU Debt Fund – Direct Plan at 7.41%. These returns reflect the funds’ effectiveness in generating consistent SIP returns, making them appealing to systematic investors. The Bandhan Banking & PSU Debt Fund – Direct Plan and Axis Banking & PSU Debt Fund – Direct Plan also perform well, with SIP returns of 6.83% and 6.8%, respectively. This range of returns highlights the competitive landscape within the banking and PSU debt fund sector.
Edelweiss Banking and PSU Debt Fund – Direct Plan, has given a 7.57% return over 5 years. With a higher 1-year return of 9.19%, the fund also boasts a 3-year SIP return of 8.36%. It was launched in September 2013 and currently manages Rs 263 crore in assets.
ICICI Prudential Banking & PSU Debt Fund – Direct Plan follows closely with a 7.52% return over 5 years. Launched in 2013, the fund has a solid asset base of Rs 10,368 crore and has generated a 3-year return of 7.68%. Its SIP returns over 3 and 5 years are 8.4% and 7.41%, respectively.
Fourth on the list is Kotak Banking and PSU Debt Fund – Direct Plan, delivering 7.29% over 5 years. Launched in 2013, it has ₹6,011 crore in net assets. Its 1-year return is 9.16%, and 3-year SIP returns stand at 8.41%.
Rounding off the top five is Aditya Birla Sun Life Banking & PSU Debt Fund – Direct Plan, with a 7.25% return over 5 years. It has Rs 8,588 crore in assets and has also posted a 1-year return of 9.16%, with 3-year and 5-year SIP returns at 8.31% and 7.14%, respectively.
The net asset values (NAVs) of these top funds further indicate their market positions, with the Bandhan Banking & PSU Debt Fund – Direct Plan leading at Rs 13,397 crore. Axis Banking & PSU Debt Fund – Direct Plan follows closely with a NAV of Rs 12,961 crore, and the ICICI Prudential Banking & PSU Debt Fund – Direct Plan comes next with Rs 10,368 crore. Aditya Birla Sun Life Banking & PSU Debt Fund – Direct Plan and Kotak Banking and PSU Debt Fund – Direct Plan have NAVs of Rs 8,588 crore and Rs 6,011 crore, respectively. These figures reflect the significant capital managed by these funds and underscore their influence in the market.
Top 5 Banking & PSU Debt Mutual Funds
| Fund Name | 5 Yr Ret (%) | 3 Yr Ret (%) | 1 Yr Ret (%) | 5 Yr SIP Ret (%) | 3 Yr SIP Ret (%) | Expense Ratio (%) | Net Assets (Cr) | Launch Date |
|---|---|---|---|---|---|---|---|---|
| UTI Banking & PSU Fund – Direct Plan | 7.71 | 9.15 | 8.48 | 7.82 | 8.02 | 0.32 | 785.00 | 2014-02-03 |
| Edelweiss Banking and PSU Debt Fund – Direct Plan | 7.57 | 7.17 | 9.19 | 7.08 | 8.36 | 0.39 | 263.00 | 2013-09-13 |
| ICICI Prudential Banking & PSU Debt Fund – Direct Plan | 7.52 | 7.68 | 8.93 | 7.41 | 8.40 | 0.39 | 10,368 | 2013-01-01 |
| Kotak Banking and PSU Debt Fund – Direct Plan | 7.29 | 7.31 | 9.16 | 7.25 | 8.41 | 0.39 | 6,011 | 2013-01-01 |
| Aditya Birla Sun Life Banking & PSU Debt Fund – Direct Plan | 7.25 | 7.20 | 9.16 | 7.14 | 8.31 | 0.39 | 8,588 | 2013-01-01 |
These top-performing funds were launched between 2013 and 2023, with the oldest being introduced in January 2013. The launch dates of these funds are indicative of their established presence and the evolving strategies that have contributed to their sustained success. As banking and PSU debt mutual funds continue to cater to risk-averse investors, their capacity to deliver stable returns amidst fluctuating market conditions remains a key factor in their appeal.