As the financial year progresses, many investors are on the lookout for safe, steady returns. Among the various investment options, Banking & PSU (Public Sector Undertaking) mutual funds have emerged as a popular choice, offering a relatively lower risk profile while delivering stable returns. These funds primarily invest in the bonds and papers of banks, public sector companies, and public financial institutions (PFIs), making them an attractive option for risk-averse investors.
Why Choose Banking & PSU Mutual Funds?
One of the main selling points of Banking & PSU debt schemes is their focus on government-backed entities. These funds are mandated to invest at least 80% of their corpus in debt instruments issued by banks, PSUs, and PFIs. Since most of these institutions are either state-owned or government-supported, they are considered to have a lower credit risk compared to private sector counterparts. This provides a level of security for investors, especially in volatile markets.
Another advantage is the relatively stable returns offered by these funds. While they may not promise the high returns that equity funds do, they tend to perform well in low-interest-rate environments, making them ideal for conservative investors seeking moderate capital appreciation with lower risk.
Top Banking & PSU Mutual Funds to Consider in April 2025
Here’s a list of some of the best-performing Banking & PSU mutual funds you should consider for investment in April 2025:
HDFC Banking and PSU Debt Fund
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Category: Banking & PSU Debt Fund
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Expense Ratio: 0.27%
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AUM: ₹9,000 crore
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Returns (1-year): 7.5%
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Why Choose It: HDFC’s fund has a robust portfolio of bonds from top-tier public sector institutions. It has delivered consistent returns over the years and is known for its risk management practices.
ICICI Prudential Banking & PSU Debt Fund
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Category: Banking & PSU Debt Fund
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Expense Ratio: 0.28%
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AUM: ₹8,000 crore
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Returns (1-year): 7.2%
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Why Choose It: This fund’s portfolio is well-diversified, focusing on bonds from established public sector banks and companies. Its conservative investment strategy offers stability even in uncertain market conditions.
Kotak Banking & PSU Debt Fund
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Category: Banking & PSU Debt Fund
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Expense Ratio: 0.24%
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AUM: ₹6,500 crore
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Returns (1-year): 6.9%
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Why Choose It: Kotak’s fund offers a good mix of short to medium-duration bonds, which provides a balance of safety and returns. The fund has a strong track record of managing interest rate risk effectively.
Aditya Birla Sun Life Banking and PSU Debt Fund
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Category: Banking & PSU Debt Fund
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Expense Ratio: 0.25%
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AUM: ₹7,200 crore
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Returns (1-year): 6.7%
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Why Choose It: Known for its steady growth and conservative approach, Aditya Birla’s fund focuses on high-quality debt securities with low credit risk. It’s an excellent option for investors looking for stable returns.
5. Nippon India Banking & PSU Debt Fund
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Category: Banking & PSU Debt Fund
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Expense Ratio: 0.28%
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AUM: ₹5,000 crore
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Returns (1-year): 7.0%
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Why Choose It: This fund focuses on investing in high-rated public sector bonds, offering a balance of safety and attractive returns. It has a solid performance history and is ideal for conservative investors.
Key Considerations Before Investing in Banking & PSU Mutual Funds
While Banking & PSU mutual funds are relatively safe, it’s important to assess certain factors before making an investment:
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Interest Rate Movements: The performance of these funds is closely linked to interest rate changes. In a rising interest rate scenario, the bond prices may fall, impacting the returns. However, in a falling rate environment, these funds tend to perform better.
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Fund’s Credit Quality: Ensure that the fund invests primarily in high-rated debt instruments. A fund with a higher proportion of low-rated debt may carry additional risk, which can affect returns.
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Investment Horizon: These funds are best suited for medium-term to long-term investments. Short-term fluctuations in interest rates or credit events may impact returns in the short run.
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Expense Ratio: Keep an eye on the expense ratio, as higher fees can eat into your returns. The funds mentioned above are known for their reasonable fees.
How to Invest in Banking & PSU Mutual Funds
Investing in these funds is relatively simple. You can either choose a direct plan or go through an advisor who can guide you based on your risk tolerance and financial goals. Many asset management companies also allow online investments through their platforms, or you can use investment platforms like Groww, Zerodha, or Coin.
Banking & PSU debt funds offer a solid and relatively safe investment option, especially for those looking for stability in their portfolio. By investing in bonds of government-backed banks and PSUs, these funds mitigate credit risk while offering steady returns. As of April 2025, the listed funds continue to stand out for their strong performance and low-risk profile, making them a compelling choice for conservative investors.
