PSU Funds: Benefits and The Top Funds

Summary

PSU (Public Sector) funds in India are government-owned mutual funds. These funds have government involvement in their management and offer numerous benefits like stability, diversification, professional management, alignment with government goals, transparency, and regulatory oversight. It is crucial to carefully assess the PSU fund and then consult with a financial advisor if necessary. This helps in eliminating risks and overcoming limitations. 

PSU funds or Public Sector mutual funds are controlled by the government or government-controlled entity that has a significant role in the management and operation of the fund. This is why they are also called government-owned mutual funds and are hence offered by government-controlled or state-owned asset management companies or financial institutions. Let us understand these funds better.

Primary characteristics of PSU mutual funds

The main features of public sector mutual funds include:

• Government inclusion: These funds are either directly managed by government institutions or by financial entities that are partially or wholly owned and managed by the government. Major Indian entities that manage public sector funds include UTI mutual fund, LIC mutual fund, or The State Bank of India (SBI) mutual fund; all of which feature significant government ownership.
• Fund objectives: PSU funds often align with government initiatives and policies. Their mandates and specific objectives are laid out to achieve these goals. As example, PSU funds often focus on investing in companies or sectors that support the goals of a government.
• Investment diversification: Despite having to align with government interests, PSU funds still offer diversification of investments by investing in a wide range of asset classes. These depend on the specific investment objective and include debt, equities, and other financial instruments.
• Trust and credibility: Due to the direct involvement of the government, public sector mutual funds are often seen as more reliable and stable. The implicit government backing also guarantees higher confidence of investors in these funds.
• Regulatory oversight: However, these funds are also subject to regulation by the appropriate financial market authorities like all mutual funds. This is to protect investors by ensuring compliance with investment guidelines.

Benefits of investing in PSU funds

Investing in public sector mutual funds has several potential benefits for an investor. Here are some of them:

• Stability and Credibility: As mentioned, PSU funds are backed by the government and its entities. This instils greater confidence in the investors toward these funds, especially the ones that incline towards adopting a more conservative stance.
• Diversification: You can truly diversify your portfolio with PSU funds that typically invests across many assets such as bonds, stocks, and other financial instruments. By diversifying your portfolio, you reduce the impact of poor-performing assets on your overall portfolio and spread the risk effectively.
• Professional Management: Most PSU funds are managed only by seasoned fund managers who can take expert investment decisions. This can unlock much more effective investment decision-making and better returns subsequently.
• Alignment with Government Objectives: As an investor, investing in PSU funds is akin to investing in the future and development of your country. Since these funds are aligned with government development goals, you end up directly supporting its initiatives and targets.
• Transparency and Regulatory Oversight: Public sector mutual funds have highly transparent operations as they are subject to stringent regulatory oversight. Their compliance with investment guidelines are constantly monitored by the regulatory authorities in a bid to protect investors' interests.
• Fund Liquidity: Much like private mutual funds, PSU funds offer high liquidity as well. Investors have the flexibility to manage their investments effectively as these funds can be purchased or sold at the net asset value (NAV) on any given business day.
• Dividend and Capital Gains: PSU funds ensure a source of income or capital appreciation over time with perioding dividend payouts or capital gains. However, these are subject to the fund’s performance.  
• SIP and Systematic Investment Plans: Investors can make smaller investments regularly over time as many public sector mutual funds offer systematic investment plans (SIPs). If you don’t want to invest a lump sum and instead want to make smaller investments over time, this can be highly useful.
• Tax Benefits: Specific types of public sector mutual funds, especially those with a government focus, may offer significant tax benefits to investors. However, for the latest details, review the tax laws in your region and consult with a tax advisor.

Top 10 mutual funds

In no particular order, the top funds and their cap types in India include:

• Nippon India Equity Hybrid Fund Growth – Hybrid cap
• Motilal Oswal Most Focused Multicap 35 Fund – Multi-cap
• DSP BlackRock Opportunities Fund - Multi-cap
• L&T Emerging Businesses Fund – Small cap
• HDFC Small Cap Fund – Small cap
• Mirae Asset Emerging Blue-chip Fund – Mid cap
• L&T Midcap Fund – Mid cap
• SBI Blue-chip Fund – Large cap
• Mirae Asset India Opportunities Fund – Large cap
• Nippon India Large Cap Fund – Large cap

In Conclusion

Despite the obvious upsides of investing in public sector mutual funds, it's important to note that they also come with their own share of risks and limitations. These can include market risk, interest rate risk, and potential regulatory changes among others. Therefore, you must assess your financial goals, risk tolerance, and the specific fund's objectives and performance history before making investments and expecting returns. To optimise your investments and ensure the best outcomes, consulting with a financial advisor is highly advisable.