Public sector investment funds that have been highly successful are about to collapse. Is it time to restructure the portfolio?

After delivering the highest returns over one and three year periods, the PSU theme is based mutual funds have offered the second lowest return, around 4.34%, over the past three months. Over a three- and one-year period, these funds have offered 46.78% and 87.36% returnsrespectively. Around six PSU funds They have been on the market for three months.

CPSE ETFthe largest PSU fund in terms of assets under management, gave the highest return of around 9.47% in the last three months. The scheme had an AUM of Rs 46,793 crore as of July 2024.

ICICI Prudential PSU Equity Fund gave 5.44% in that period, followed by SBI PSU Fund which returned 3.23% over the same time period. Invesco India PSU Equity Fundthe oldest fund in the category, returned 2.82% over the last three months.

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After topping the charts in the last one and three years, what has affected the performance of these funds? Has performance declined post-Budget?

“The performance of PSU funds has fallen recently due to temporary corrections. These funds had risen substantially in the last 2 years and are now reverting to the mean. Returns of equity mutual funds are inherently non-linear, sometimes rising early and other times later in the investment period,” said Manish Kothari, Co-Founder and CEO, ZFunds. CPSE ETF, the best performer in the last one and three years, gave a return of 112.76% and 60.26% respectively. ICICI Prudential PSU Equity Fund, which has been there in the last one-year period, gave a return of only 82.19%. Invesco India PSU Equity Fund, the oldest PSU fund, gave a return of 82.07% and 40.59% in the last one and three years respectively.

After delivering remarkable performance in the above mentioned period, should an investor invest in these funds?

According to the expert, investors can invest in these funds only if they have a longer term. investment horizon around 4-5 years.

“Investors entering these funds now should have an investment horizon of 4-5 years,” Kothari advised.

Based on the annual returns for the past 10 years (2014-2023), PSU thematic mutual funds have offered negative returns in 2015, 2018 and 2020. In the past 10 years, these funds have offered the highest return in 2023 of around 59.23%. In 2018, these funds lost around 19.90%. So far in 2024, these schemes have offered an average return of 40.37%.

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Thematic PSU schemes are compared with Nifty CPSE – TRI and BSE PSU – TRI, which gave a return of 9.49% and 4.77% in the last three months.

Will PSU funds offer low returns or will they recover? What is the outlook for these funds?

The expert recommends that investors have profitability expectations based on a long-term horizon, say five to seven years, and not on short-term performance.

“Expectations of future returns should be based on the annual returns of the last 5-7 years of these funds and not on the returns of the last half year,” Kothari said.

PSU funds are thematic funds that invest in shares of Public sector companies or public sector enterprises. These companies are owned by the government and are therefore influenced by government policies in the sectors in which they operate.

You should only invest in these schemes if you have a long-term investment horizon or have in-depth knowledge of the sector to be able to time your entry and exit from these schemes. Remember that every sector or theme can go out of fashion depending on the economic conditions. You should not take hasty decisions in such phases.

(Disclaimer:The recommendations, suggestions, views and opinions of the experts are their own and do not represent the views of The Economic Times.

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