Best Banking & PSU mutual funds to invest in 2022

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Are you looking for relatively safer debt funds to invest in the new year? If so, you should check out banking & PSU debt funds. These schemes have the mandate to invest at least 80% of their corpus in debt investments of banks, public sector undertakings, and public financial institutions.

These schemes have offered 3.55% returns in the last year. Debt schemes didn’t have a great year and it is reflected in the returns.

Advisors say banking & PSU debt schemes are ‘relatively’ safe because they invest only in banks and PSUs. Since most of these entities are government-backed or owned, they don’t have credit risk. As you know, the debt market was rocked by downgrades and defaults not long ago. Many conservative investors stopped investing in debt schemes because they were scared of getting back their money.

However, this doesn’t mean that these schemes do not have any risk at all. For example, these schemes invest in papers of private banks. Since they don’t have government backing, they carry some risk. However, since banks are highly regulated, the risk is minuscule. Also, interest rate changes can adversely affect these schemes.

If you are investing for three years and aware of the risks associated with these schemes, you can consider investing in Banking & PSU schemes.

Best Banking & PSU funds to invest in 2022:

  • IDFC Banking & PSU Debt Fund
  • Axis Banking & PSU Debt Fund
  • Aditya Birla Sun Life Banking & PSU Debt Fund
  • DSP Banking & PSU Debt Fund
  • Kotak Banking and PSU Debt Fund

Methodology:
ETMutualFunds.com has employed the following parameters for shortlisting the debt mutual fund schemes.

1. Mean rolling returns: Rolled daily for the last three years.

2. Consistency in the last three years: Hurst Exponent, H is used for computing the consistency of a fund. The H exponent is a measure of randomness of NAV series of a fund. Funds with high H tend to exhibit low volatility compared to funds with low H.

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

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

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

3. Downside risk: We have considered only the negative returns given by the mutual fund scheme for this measure.

X =Returns below zero

Y = Sum of all squares of X

Z = Y/number of days taken for computing the ratio

Downside risk = Square root of Z

4. Outperformance: Fund Return – Benchmark return. Rolling returns rolled daily is used for computing the return of the fund and the benchmark and subsequently the Active return of the fund.

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

(Disclaimer: past performance is no guarantee for future performance.)

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