Finance
Diversify your equity heavy portfolio with Banking & PSU Funds
Financial planning is essential anyone who wishes to build a commendable corpus over the long term. It is almost impossible to become wealthy overnight. Through financial planning you can determine your life’s short term and long term financial goals and keeping your existing wealth and existing liabilities in mind figure out how and where to spread your assets. There is a vast opportunity for investors here in India as there are literally thousands of investment options to choose from. Fixed interest offering schemes have always been on the top of the list for Indian investors. However, in the recent past the constantly depreciating fixed interest rates have led to a dismay among individuals who are now switching to market linked schemes like mutual funds.
Mutual funds like debt funds invest in fixed income securities that generate regular income. Debt funds are open ended mutual fund schemes that invest in money market instruments and debt securities like commercial papers, certificate of deposits, government securities, corporate bonds, treasury bills etc. for income generation.Debt funds are generally preferred by those individuals who carry moderate to low risk appetite and are looking for schemes that offer better returns that fixed interest offering investment products.
What are banking and PSU funds?
As of now there are around 15 products under debt schemes, all carrying a different investment objective and asset allocation strategy.According to market regulator SEBI guidelines, banking and PSU fund must invest a minimum of 80 percent of its total assets in debt instrumentsof banks, Public Sector Undertakings (PSUs) and Public Financial Institutions.
Benefits of investing in banking and PSU funds
Since these funds only lend money to high quality borrowers, banking and PSU schemes carry a very low credit risk. Here are some of the benefits of investing in banking and PSU funds –
Low maturity high liquidity – These are open ended debt schemes that offer high liquidity allowing investors to add them to their mutual fund portfolio for diversification. If you have invested in a scheme like ELSS which comes with a statutory lock in period of three years and are looking to add some liquidity to your investment portfolio, you can consider investing in a banking and PSU fund. Also, a low maturity periods means that these funds are also safe from credit risk.
Ideal for short term investment – While equity schemes make a great investment option for those seeking long term capital appreciation, investors with an investment horizon of 12 months or below can consider investing in banking and PSU funds. These debt schemes are known to offer moderate returns with low investment risk. Investors can target their life’s short term financial goals like renovation of their home, making the down payment of their luxury car or planning a short vacation by investing in banking and PSU funds.
Easy SIP option – You can either make a one time lumpsum investment or start a monthly SIP in a banking and PSU scheme of your choice. A Systematic Investment Plan allows investors to save and invest a fixed amount at regular intervals. SIPs are highly flexible in nature thus giving investors the liberty to start or stop investing in mutual funds at their will. You can even modify the SIP amount depending on your income needs and changing financial goals. One can even refer to SIP calculator a free online tool that draws an estimate on the capital gains that your SIP investments might fetch at the end of your investment journey.
Investors with an equity heavy portfolio can diversify their portfolio by investing in a banking and PSU fund.
