In recent months, quite a few Banking and PSU Debt were launched. The first such fund was launched by ICICI Prudential in 2010. In 2013, other AMCs such as DWS, IDFC, JP Morgan and DSP BlackRock launched their banking funds. In 2014, UTI launched its version followed by Franklin Templeton Banking & PSU, which closed its NFO on April 16, 2014. There are more funds on the anvil with IDBI Mutual Fund having filed an offer document with SEBI to launch its fund. Collectively these seven funds manage nearly ₹2,250 crore.
A bond fund which invests only is Banks and PSU bonds is an interesting investment proposition for its restrictions. As Banks and PSUs don't issue long maturity bonds, these funds will be insulated from a significant duration risk. These funds will also steer clear of risky and low rated corporate bonds.
Bonds issued by banks and PSUs dominate the Indian corporate bond market in terms of outstanding and volumes. This is likely to ensure high liquidity for the funds investment. Bank and PSU bonds are also considered safer than any other private sector bond or debenture. These Banks and PSU bonds generally yield more than the government securities.
These funds are likely to be a good balance of liquidity, return and safety for the medium term, i.e. an investment of 1-3 years and might appeal to risk averse investors seeking enhanced yield from fixed income.