PSU equity funds have underperformed the headline indices over the last many years. However, in the last 9-12 months, the BSE PSU index has delivered 15-16 percent returns. So it has clearly outperformed the sensex during this period.
Given that, should individuals consider it as a good investment option?
Before digging further, let’s first see what are PSU equity funds.
A PSU equity fund is a kind of thematic fund which allows individuals to invest in government-owned public sector companies and bank stocks.
These sectors include banking, oil and gas, telecom, metals, hospitality, aviation, etc.
The best PSU equity funds
SBI PSU Fund
This fund is offered by SBI Mutual Fund and has delivered an annualised return of 2.9 percent since launch.
The benchmark of this fund is S&P BSE PSU Index.
Invesco India PSU Equity Fund
This fund is offered by Invesco Mutual Fund. It is a 9 years 8 month old fund and has delivered average annual returns of 12.44 percent since inception.
The benchmark of this fund is S&P BSE PSU Index.
The table below shows 1-year return of some of the PSU equity funds:
Funds | 1 Yr Ret (%) |
Aditya Birla Sun Life PSU Equity Fund - Direct Plan | 14.62 |
CPSE Exchange Traded Fund | 24.82 |
ICICI Prudential PSU Equity Fund - Direct Plan | -- |
Invesco India PSU Equity Fund - Direct Plan | 9.30 |
SBI PSU Fund - Direct Plan | 14.81 |
Should one go for them?
According to Nitin Rao, Head of Product and Proposition, Epsilon Money Mart, PSUs tend to have relatively better dividend yield than broader markets. They are government-owned, present across sectors and offer diverse investment opportunities.
However, there are select funds which are investing purely into PSU equities, which the investor can consider for exposure.
Rao said people should invest in line with their risk profile and investment objective.
It's imperative to note that although these funds are low risk, they aren’t entirely risk-free. They are susceptible to interest rate movement and may earn negative returns when yields go up.
Those investing in these funds should consider a time horizon of at least five years because these are equity funds and need time to perform.
