Mutual fund advisers claim that debt schemes of banks and public sector companies are “relatively” safe because these schemes invest only in bonds and papers of banks and public sector companies. Since most of these entities are backed by the government, they have no credit risk.
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These schemes have become extremely popular after the troubles that hit the debt mutual fund sector three years ago. The debt market was rocked by rating downgrades and defaults not long ago. Many conservative investors stopped investing in debt schemes because they were afraid of getting their money back.
However, this does not mean that these schemes do not have any risk. For example, these schemes also invest in securities issued by private banks. Since they do not have government backing, they do carry some risk. However, since banks are highly regulated, the risk is miniscule. Also, changes in interest rates can negatively affect these schemes.
A rising or firm interest rate environment is bad for debt funds. However, since these schemes do not invest in very long duration securities, they will be relatively better off. Most money market experts say that interest rates have peaked and the RBI will start cutting interest in the latter part of the year. It may start cutting rates once it is convinced that inflation is cooling down. However, be prepared for some volatility until then. If you are investing for three years and are aware of the risks associated with these schemes, you may consider investing in banking and public sector undertaking schemes. DSP Banking & PSU Debt Fund has been in the second quartile for six months. The scheme was in the third quartile earlier. Axis Banking & PSU Debt Fund, one of our recommended schemes, has been in the third quartile for the last nine months. Here are our recommended schemes. Look out for our monthly updates to keep track of your schemes.Read also | Mango Millionaire: Radhika Gupta announces a new book on investing
Best Banking and Public Sector Company Funds to Invest in August 2024:
- Bandhan Banking and PSU debt fund
- Axis Banking and Public Sector Debt Fund
- Aditya Birla Sun Life Public Sector Enterprises and Bank Debt Fund
- DSP Banking and PSU debt fund
- Kotak Public Sector Enterprises and Bank Debt Fund
Methodology:
ETMutualFunds has used the following parameters to select the debt mutual fund schemes.
1. Moving average returns: Filmed daily for the past three years.
2. Consistency over the last three years: The Hurst exponent, H, is used to calculate the consistency of a fund. The exponent H is a measure of the randomness of a fund’s NAV series. Funds with a high H tend to exhibit low volatility compared to funds with a low H.
i) When H = 0.5, the return series is said to be a geometric Brownian time series. Such time series are difficult to forecast.
ii)When H < 0.5, the series is said to have mean reversion.
iii) When H > 0.5, the series is said to be persistent. The higher the value of H, the stronger the trend of the series.
3. Downside risk: For this measure we have only considered the negative returns contributed by the mutual fund.
X = Returns below zero
Y = Sum of all squares of X
Z = Y/number of days needed to calculate the relationship
Downside risk = square root of Z
4. Superior performance: Fund performance: benchmark performance. Daily cumulative returns are used to calculate the fund and benchmark performance and subsequently the fund’s active performance.
Asset size: For debt funds, the limit asset size is Rs 50 crore.
(Disclaimer: Past performance is no guarantee of future performance.)
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