Best bank mutual funds and PSUs to invest in October 2024

Are you looking for relatively safe debt funds to invest in for a few years? You can consider investing in bank and PSU debt funds as these schemes are mandated to invest at least 80% of their corpus in debt investments of banks, public sector undertakings and public financial institutions.

Mutual fund advisors say bank debt and PSU schemes are “relatively” safe because these schemes invest only in bonds and papers of banks and public sector undertakings. 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 in the debt mutual fund space three years ago. The debt market was rocked by 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 are risk-free. For example, these systems also invest in securities issued by private banks. Since they are not backed by the government, they carry some risk. However, since banks are highly regulated, the risk is minuscule. Additionally, changes in interest rates may negatively affect these plans.

A firm or rising 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. You can start cutting rates, once you are convinced that inflation is cooling. 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 can consider investing in banking and PSU schemes. DSP Banking & PSU Debt Fund has been in the second quartile for eight months. The scheme was previously in the third quartile. Axis Banking & PSU Debt Fund, one of our recommended schemes, has been in the third quartile for the last 11 months. Here are our recommended schemes. Look for our monthly updates to keep track of your schemes.Read also | Digital leap: HDFC AMC joins ONDC network

Best Bank and PSU Funds to Invest in October 2024:

• Bandhan Banking and PSU Debt Fund
• Axis Banking and PSU Debt Fund
• Aditya Birla Sun Life PSU and Bank Debt Fund
• Banking DSP and PSU Debt Fund
• Kotak Banking and PSU Debt Fund

Methodology:

ETMutualFunds has employed the following parameters to shortlist the debt mutual fund schemes.
1. Average rolling returns: Shot daily for the last three years.

2. Consistency in the last three years: The Hurst exponent, H, is used to calculate the coherence of a background. The H exponent is a measure of the randomness of a fund’s NAV series. Funds with high H tend to exhibit low volatility compared to funds with low H.

i) When H = 0.5, the return series is said to be a geometric Brownian time series. These types of time series are difficult to forecast.

ii) When H < 0.5, the series is said to mean reversal.

iii) When H>0.5, the series is said to be persistent. The larger the value of H, the stronger the trend of the series.

3. Risk of falling: For this measure we have only considered the negative returns provided by the mutual fund system.
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: reference performance. Daily rolling returns are used to calculate the fund and benchmark performance and subsequently the fund’s active performance.

Asset size: For debt funds, the threshold asset size is Rs 50 crore.

(Disclaimer: Past performance is no guarantee of future performance.)