Banking & PSU Fund: In the announcement of the Monetary Policy of the Reserve Bank, it is a clear indication that the government’s focus is on maintaining adequate liquidity in the banking system.
Banking & PSU Fund: In the announcement of the monetary policy of the Reserve Bank, there is a clear indication that the government’s focus is on maintaining adequate liquidity in the banking system. At the same time, some important announcements were made in the budget to strengthen the banking system. Expert says that the budget and monetary policy is going to be positive for banking and PSU fund cutting. This will increase the attraction of investors in these segments. Investors of Moderate Kategiri who want to keep their target for at least 3 years should invest in this category.
What to say about expert
Kumaresh Ramakrishnan, CIO-Fixed Income, PGIM India Mutual Fund, says that there has been no change in rates of any kind in the RBI policy. The liquidity stance has also been retained at the academia. RBI will revise the CRR to 4 percent in two phases. The CRR for banks was reduced from 4 per cent to 3 per cent in March 2020. It is now to be increased to 50 basis points — 50 basis points — 4 percent in 2 phase March 2021 and May 2021.
The policy gives relief on SLR Securities on HTM limit. Which was increased from 19 percent to 22 percent in March 2020. Now it has been decided to continue till March 2023. This will support in managing the borrowing programs of banks. Apart from this, retail investors will now be able to transact in government bonds by opening a gilt account with RBI. This will increase demand in the coming days. Overall RBI announcements are positive for banking and PSUs and corporate bonds. You can get good returns in the coming days.
Liquidity will increase in the system
RBI will revise CRR to 4 percent in two phases. Seeing that the liquidity in the market is improving, the central bank has made this decision. With this step, the liquidity in the banking system will absorb about 1.37 lakh crore, that is, withdraw it from the market. At the time of Kovid, the CRR for all banks was reduced by 1 per cent to 3 per cent, so that banks could have more cash and they could give more loans. CRR will be 3.5 percent from 27 March 2021 and 4 percent from 22 May 2021.
Why increase banking and PSU funds?
Banking and PSU funds are fixed income funds that invest in debt and money markets. These are issued by banks, public sector undertaking and public financial institutions. According to SEBI rules, banking and PSU funds have to invest at least 80 per cent of their total assets in similar entities.
The reason behind increasing attraction of banking and PSU funds is that if we talk about the last few months, investors have been cautious in the debt segment. They have attractive yield, moderate interest risk and most importantly high credit quality. It gives better returns than FD. Their expense ratio is also low.
Outperforming funds
ABSL Banking & PSU Debt Fund
Kotak Banking & PSU Debt Fund
HDFC Banking & PSU Fund
Nippon India Banking & PSU Fund
Return is linked to interest rates
If the interest rates remain low then the returns of these funds increase. Further cuts in rates are possible this financial year. At the same time, these schemes are very liquid. These schemes are less risky than other debt schemes as they invest in high-rated instruments. However, they are not completely risk free.
