Banking and PSU fund: Is it a suitable option for debt fund investment?

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Debt funds are a popular choice among conservative investors seeking fixed-income options that offer potentially reasonable returns compared to traditional savings accounts or fixed deposits. Within the category of debt funds, Banking and Public Sector Undertakings (PSU) funds have gained prominence due to their unique characteristics and the relatively stability they offer.

Let’s explore the benefits of Banking and PSU funds as a debt fund investment and understand who should consider them.

  • Table of contents
  1. Benefits of banking and PSU fund
  2. Bajaj Finserv Banking and PSU Fund
  3. Who should invest in banking and PSU fund?
  4. Tax implications
  5. faq

Benefits of banking and PSU fund

Banking and PSU funds primarily invest in securities issued by PSU, Public Financial Institutions (PFI) and banks. They offer many advantages:

Relative stability

Since these schemes invest in highly rated debt securities, they provide an enhanced level of relative stability to the portfolio.

Lower credit risk

Banking and PSU funds primarily invest in debt instruments with strong credit ratings; hence, the risk of default is significantly reduced. This makes them a lower-risk alternative compared to funds that invest in lower-rated corporate bonds.


Banking and PSU funds typically offer more predictable return opportunity than equity funds.


Investors can redeem their units with ease, making these funds a suitable option for short to medium-term financial goals.

Why mutual funds are ideal for your child’s education

Bajaj Finserv Asset Management Company has introduced the Bajaj Finserv Banking and PSU Fund, an open-ended debt scheme. This fund focuses on investments in debt instruments issued by banks, public sector undertakings, public financial institutions, and municipal bonds. It aims to strike a balance between relatively high interest rate risk and moderate credit risk.

Who should invest in banking and PSU fund?

Risk-averse investors

For conservative investors who prioritize mitigating impact on capital and seek a relatively lower-risk/moderate risk investment, Banking and PSU funds can be a good choice.

Short to medium-term goals

If you have financial goals with a time horizon of three to five years, these funds can offer a balance of relative stability and potentially steady returns.

First-time mutual fund investors

For those new to mutual fund investments and seeking an easy entry into the world of debt funds, Banking and PSU funds can be a convenient choice.

Retirement Planning

These funds can be a valuable addition to retirement portfolios, providing relative stability and potentially consistent returns.

Tax implications

Investment made on or after 1st April 2023

Entire amount of capital gains is added to the investors' income and taxed according to the applicable slab rate irrespective of the holding period.

Investment made before 1st April 2023

Short-term capital gains: If you redeem your units within 3 years of investment, the gains are treated as short-term capital gains and are taxed as per your income tax slab.

Long-term capital gains: If you hold your units for more than 3 years, the gains qualify as long-term capital gains (LTCG). As of the latest tax regulations in India, LTCG from mutual funds are taxed at 20% with indexation benefits.


Banking and PSU funds invest exclusively in highly rated, banking, PSU, PFI debt securities, making them a suitable option for risk averse investors with short to medium term goals. However, it's essential to consider your investment horizon, risk tolerance, and financial objectives before making an investment decision. As with any investment, it's advisable to consult with a financial advisor to determine the ideal strategy for your individual circumstances.


What is the difference between Banking and PSU funds and other debt funds?
Banking and PSU funds primarily invest in debt instruments issued by banks and public sector undertakings, which are considered relatively stable. In contrast, other debt funds may invest in a broader range of debt securities, including corporate bonds with varying credit ratings, making them comparatively riskier.

Are Banking and PSU funds suitable for long-term investments?
While these funds are often considered for short to medium-term goals, they can also be suitable for long-term investments, especially for risk-averse investors.

Are Banking and PSU funds entirely risk-free?
No investment is entirely risk-free. While Banking and PSU funds are among relatively stable options, they are not immune to market fluctuations. There may still be interest rate risk, liquidity risk, credit risk, and market risk associated with these schemes.

Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
This document should not be treated as endorsement of the views/opinions or as investment advice. This document should not be construed as a research report or a recommendation to buy or sell any security. This document is for information purpose only and should not be construed as a promise on minimum returns or safeguard of capital. This document alone is not sufficient and should not be used for the development or implementation of an investment strategy. The recipient should note and understand that the information provided above may not contain all the material aspects relevant for making an investment decision. Investors are advised to consult their own investment advisor before making any investment decision in light of their risk appetite, investment goals and horizon. This information is subject to change without any prior notice.