By Anshul IST (Released)

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PSU equity funds invest primarily in public companies in the public sector. CNBC-TV18.com compares the best performing funds based on the latest 1-year return.

PSU equity funds have underperformed major indices over the past few years. However, over the last 9-12 months, the BSE PSU index has generated returns of 15-16%. It therefore clearly outperformed the sensex during this period.

Given this, should individuals consider it a good investment option?

Before we dig any deeper, let’s first see what PSU equity funds are.

A PSU equity fund is a kind of thematic fund that allows individuals to invest in public sector public companies and bank stocks.

These sectors include banking, oil and gas, telecommunications, metals, hospitality, aviation, etc.

The Best PSU Equity Funds

This fund is offered by SBI Mutual Fund and has generated an annualized return of 2.9% since inception.

The benchmark for this fund is the S&P BSE PSU index.

Invesco India PSU Equity Fund

This fund is offered by Invesco Mutual Fund. It is a 9 year and 8 month fund that has generated average annual returns of 12.44% since inception.

The benchmark for this fund is the S&P BSE PSU index.

The table below shows the 1-year performance of some of the PSU equity funds:

Funds

1 year retirement (%)

Sun Life Aditya Birla PSU Equity Fund – Direct Scheme

14.62

CPSE Exchange Traded Fund

24.82

ICICI Prudential PSU Equity Fund – Direct Scheme

Invesco India PSU Equity Fund – Direct Scheme

9:30 a.m.

SBI PSU Fund – Direct Scheme

14.81

According to Nitin Rao, Head of Products and Propositions, Epsilon Money Mart, PSUs tend to have a relatively better dividend yield than broader markets. They are state-owned, present in all sectors and offer various investment opportunities.

However, there are select funds that invest only in PSU shares, which the investor can view as exposure.

Rao said people should invest based on their risk profile and investment objective.

It is imperative to note that although these funds are low risk, they are not entirely risk free. They are sensitive to changes in interest rates and may generate negative returns when yields increase.

Investors in these funds should consider a time horizon of at least five years, as they are equity funds and need time to perform.