Skip to main content

Mutual Funds oriented towards PSU

With the government aiming to raise around `40,000 crore in financial year 2011-12, one can expect more initial public offers and follow-on public offers from public sector units (PSUs).

Companies where stake dilution has already been approved include Power Finance Corporation, Steel Authority of India (SAIL), Hindustan Copper and Oil and Natural Gas Corporation. Others like Indian Oil Corporation, Metals and Minerals Trading Corporation (MMTC) and National Aluminium Corperation Limited (Nalco) are also expected to be made available to investors this year.

To cash in on this opportunity, mutual funds houses launched PSU schemes last year to attract retail investors looking to invest in government firms. Fund managers feel PSU funds are a good avenue for retail investors and are a must-have in one's portfolio. Reason: PSUs are fundamentally strong companies and, with the government's backing, chances of defaults are less. Also, most of them have a monopoly in the industry they operate in. During the economic slowdown, they showed greater resilience than their private sector counterparts.

With a new set of government firms likely to go public this year, there will be a lot of portfolio churning in PSU funds to include more such stocks, fund managers say.

The PSU index has outperformed the Sensex by 8-10 per cent over the last 10 years. Since May 13, 2002, it has returned almost 445 per cent, as against 438 per cent from the Sensex. Also, given the scale, size and valuation of these companies, holding them can be a good bet from a risk-reward perspective. However, returns from these funds are not very attractive.

Presently, there are only four mutual fund schemes investing in PSUs, apart from two public sector bank funds. The former include Baroda Pioneer PSU Equity, Religare PSU Equity, SBI PSU and Sundaram PSU Opportunities.

According to mutual fund tracking agency, Value Research, while Sundaram PSU Opportunities has returned 10 per cent over the last year, Religare PSU Equity has returned 3.5 per cent. In comparison, the Sensex returned over seven per cent in the same period.

Others like Baroda Pioneer PSU Equity and SBI PSU have returned negative nine per cent over the last six months, almost in-line with the Sensex (negative eight per cent).

Radhika Gupta of Forefront Capital Advisors believes these aren't a bad investment option. There are good PSU banks like State Bank of India (SBI) and companies like ONGC one can consider investing in. At the same time, since most investors hold largecap schemes, she warns them not to go overboard with the theme. So, if you are already invested in largecap funds, you could stay away from PSU funds.

For instance, HDFC Top 200 holds PSU heavyweights SBI, Punjab National Bank, Gas Authority of India (GAIL), National Thermal Power Corporation (NTPC), ONGC and Oil India. Similarly, Fidelity Equity invests in SBI, Bank of Baroda, ONGC, Larsen and Toubro (L&T), NTPC and Bharat Heavy Electricals Ltd (BHEL). Both these funds are returning 13 and 11 per cent, respectively, higher than PSU funds.

It is a risky affair as these are thematic funds and you would end up putting all the eggs in one basket. One should not invest more than 5-10 per cent in these funds.

Financial planners suggest investing 80-85 per cent of your portfolio in good, largecap funds and experimenting with sector or thematic funds with the remaining. This would vary according to your age and risk taking ability.

Experts also feel these funds may not be meant for small investors (those investing up to 10,000 through systematic investment plans). Instead, they could help the bigger investors diversify their portfolio further.

In case you are planning to buy PSU stocks, that wouldn't be agood idea too, as far as the returns are concerned. The PSU index has given negative two per cent returns over the last year and negative 11 per cent over six months. Though there are many interesting stocks in this space, it is by virtue of their fundamentals and not because they are government firms. For instance, NTPC has been underperforming over the last three years.

Therefore, it's best to stick to a good large and large & midcap fund. That should suffice.

Ø       PSU index has outperformed Sensex by 8-10 % in the last 10 years

Ø       These could be safer investment avenues

Ø       But, these funds are thematic; invest up to 10 per cent

Ø       Invest in PSU funds only if not holding a largecap fund

Investing both in largecap and PSU funds could lead to overexposure

Popular posts from this blog

Am you Required to E-file Tax Return?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Am I Required to 'E-file' My Return? Yes, under the law you are required to e-file your return if your income for the year is Rs. 500,000 or more. Even if you are not required to e-file your return, it is advisable to do so for the following benefits: i) E-filing is environment friendly. ii) E-filing ensures certain validations before the return is filed. Therefore, e-returns are more accurate than the paper returns. iii) E-returns are processed faster than the paper returns. iv) E-filing can be done from the comfort of home/office and you do not have to stand in queue to e-file. v) E-returns can be accessed anytime from the tax department's e-filing portal. For further information contact Prajna Capit...

IDFC - Long term infrastructure bonds - Tranche 2

IDFC - Long term infrastructure bonds What are infrastructure bonds? In 2010, the government introduced a new section 80CCF under the Income Tax Act, 1961 (" Income Tax Act ") to provide for income tax deductions for subscription to long-term infrastructure bonds and pursuant to that the Central Board of Direct Taxes passed Notification No. 48/2010/F.No.149/84/2010-SO(TPL) dated July 9, 2010. These long term infrastructure bonds offer an additional window of tax deduction of investments up to Rs. 20,000 for the financial year 2010-11. This deduction is over and above the Rs 1 lakh deduction available under sections 80C, 80CCC and 80CCD read with section 80CCE of the Income Tax Act. Infrastructure bonds help in intermediating the retail investor's savings into infrastructure sector directly. Long term infrastructure Bonds by IDFC IDFC issued an earlier tranche of these long term infrastructure bonds on November 12, 2010. This is the second public issue of long-te...

Section 80CCD

Top SIP Funds Online   Income tax deduction under section 80CCD Under Income Tax, TaxPayers have the benefit of claiming several deductions. Out of the deduction avenues, Section 80CCD provides t axpayer deductions against investments made in specific sector s. Under Section 80CCD, an assessee is eligible to claim deductions against the contributions made to the National Pension Scheme or Atal Pension Yojana. Contributions made by an employer to National Pension Scheme are also eligible for deductions under the provisions of Section 80 CCD. In this article, we will take a look at the primary features of this section, the terms and conditions for claiming deductions, the eligibility to claim such deductions, and some of the commonly asked questions in this regard. There are two parts of Section 80CCD. Subsection 1 of this section refers to tax deductions for all assesses who are central government or state government employees, or self-employed or employed by any other employers. In...

ULIP Review: ProGrowth Super II

  If you are interested in a death cover that's just big enough, HDFC SL ProGrowth Super II is something worth a try. The beauty is it has something for everybody — you name the risk profile, the category is right up there. But do a SWOT analysis of the basket, and the gloss fades     HDFC SL ProGrowth Super II is a type-II unit-linked insurance plan ( ULIP ). Launched in September 2010, this is a small ticket-size scheme with multiple rider options and adequate death cover. It offers five investment options (funds) — one in each category of large-cap equity, mid-cap equity, balanced, debt and money market fund. COST STRUCTURE: ProGrowth Super II is reasonably priced, with the premium allocation charge lower than most others in the category. However, the scheme's mortality charge is almost 60% that of LIC mortality table for those investing early in life. This charge reduces with age. BENEFITS: Investors can choose a sum assured between 10-40 times the annualised premium...

Bharat Bond ETF

Top SIP Funds Online   The government of India has paved the way for the launch of India's first corporate bond ETF called as Bharat Bond ETF. Edelweiss Mutual Fund will be managing it. The fund is mandated to invest in AAA-rated bonds of select public sector companies (see the table 'List of constituents and their proportions in the portfolio'). The government has a threefold objective behind launching this product. One, to deepen the liquidity of the Indian debt markets and provide a gateway for easy retail participation. Two, to solve investors' dilemma of picking premium bonds. Lastly, to help the underlying government-owned companies raise funding for their operations. But does it make sense for you, the investor, to invest in it? Lets find out. What is the product? As the name suggests, it is an exchange-traded fund which will be listed on a stock exchange from where its units can be bought and sold post launch. It will have two variants - one maturing in 3 ye...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now