Mirae Asset Banking and PSU Debt Fund NFO – Is it a safe investment option?

Mirae asset Banking and PSU Debt Fund NFO ReviewMirae Asset Banking and PSU Debt Fund NFO Review


Mirae Asset MF has come up with Banking and PSU Debt fund that opened for subscription on 8 July, 2020. Such funds invests in debt instruments of banks and public sector enterprises and experts believe these are relatively safer compared to corporate bond funds. Post Franklin debt mutual funds fiasco, investors are concerned about investing in debt mutual funds now. Should you invest in Mirae Asset Banking and PSU Debt Fund? What are the various risk factors associated with such funds?

Also Read: Rossary Biotech IPO opens 13 July – Should you subscribe?

Issue details of Mirae Asset Banking and PSU Debt Fund (NFO)

This is an open-ended equity mutual fund scheme.

This scheme would open for subscription on 8 July, 2020

This scheme would close for subscription on 17 July, 2020

Since this is an open ended scheme, it would again open for subscription after the NFO period, i.e. from 27 July, 2020 for fresh subscriptions.

This scheme is available in both regular and direct plans.

This plan offers both growth option and dividend option.

This scheme is available for lump sum and SIP investment.

Minimum investment is Rs 5,000 and in multiples of Rs 1 there-off for lump sum investments.

Minimum investment is Rs 500 per month for monthly SIP and for a tenure of 6 months.

The NAV of the fund is Rs 10 per unit during the NFO initial subscription.

There is no entry load to invest in this fund.

There is no exit load in this scheme.

This scheme is classified as MODERATE risk scheme.

Scheme total expense ratio (TER) is estimated at a maximum of 2%.

Download Mirae Asset Banking and PSU Debt Fund SID

What is the investment objective of this MF scheme?

The investment objective of the scheme is to generate income / capital appreciation through predominantly investing in debt and money market instruments issued by Banks, Public Sector Undertakings (PSUs) and Public Financial Institutions (PFIs) and Municipal Bonds.

There is no assurance or guarantee that the investment objective of the scheme will be realized.

Who is eligible to invest in this mutual fund scheme?

The following can invest in this scheme.

1) Indian resident adult individuals, either singly or jointly.

2) Minors through Parents/Lawful Guardian.

3) Hindu Undivided Family (HUF) through its Karta.

4) Partnership Firms in the name of any one of the partners.

5) Proprietorship in the name of the sole proprietor.

6) Companies, Body Corporate, Societies, Association of Persons, Body of Individuals, Clubs and Public Sector Undertakings registered in India if authorized and permitted to invest under applicable laws and regulations.

7) Banks

8) Non-Resident Indians (NRIs) / Persons of Indian Origin (PIO) on full repatriation basis or on non-repatriation basis;

Complete list of eligible participants who can invest can be checked in prospectus of this new fund offer.

Who is the Fund Manager of Mirae Asset Banking and PSU Debt Fund?

The Fund Manager is Mr. Mahendra Jajoo.

What is the benchmark for this scheme?

The benchmark for this scheme is NIFTY Banking and PSU Debt Index.

What is the allocation pattern in this mutual fund?

This fund investment pattern is as follows:

1) It invests 80% to 100% in Debt and Money Market Instruments, issued by Scheduled Commercial Banks, Public Sector Undertakings (PSUs) & Public Financial Institutions (PFIs) and Municipal Bonds. The risk profile in this segment is low to medium.

2) It would invest 0% to 20% in Debt (including government securities) and Money Market Instruments issued by entities other than Banks, PFIs, PSUs and Municipal Bonds. The risk profile in this segment is low to medium.

3) It would invest 0% to 10% in units issued by REITs and InvITs. The risk profile in this segment is medium to high.

Why to invest in the Mirae Asset Banking and PSU Debt Fund?

Here are a few reasons to invest in such mutual fund schemes.

1) This would have a relatively higher allocation in AAA rated debt instruments of banks and PSU. Such investment strategy would help to reduce risk in this fund.

2) This fund aims to provide higher returns and invest in short and medium term of 2-5 years. This is good for short to medium term investors.

3) Since it invests in banks and PSU debt instruments, it provides high liquidity unlike corporate bond funds which invests in corporate debt papers (including private sector) and are high risk with have liquidity issues.

4) Banking and PSU debt funds segment performed well and gave higher returns in the last few years compared to corporate bond funds, dynamic bond funds, medium to long term duration funds etc.,

Some key risk factors you should consider before you invest in such funds

One should consider some of these risk factors / negative factors before investing.

1) Such funds would have interest rate risks (interest rate increases, bond yield fall and vice versa).

2) While investment in PSUs debt would have almost zero risk, there is credit risk of investing in commercial bank debt instruments. If the ratings of such commercial banks go down, the value of the bonds invested also would go down. It would invest in scheduled commercial banks that include private sector banks, public sector banks, small finance banks, payment banks and foreign banks that has a presence in India. Hence, these funds still carry risk.

3) You can refer complete risk factors of investing in this particular scheme in SID / KIM / NFO prospectus.

How Banking and PSU Debt funds segment performed compared to other short and long term debt funds?

Here is the quick snapshot on the performance of the category compared to other debt funds.

Mirae asset Banking and PSU Debt Fund Review - Performance of Banking and PSU debt funds with other debt funds

Source: Crisil – through SID of this scheme

How is the Performance of existing Banking and PSU debt funds in India?

Now, let us look at some of the best performing banking and PSU debt funds in India.

Mirae asset Banking and PSU Debt Fund Review - Performance of Banking and PSU debt funds in 2020

Also Read: What are equity mutual funds?

Should you invest in the Mirae Asset Banking and PSU Debt Fund NFO?

Mirae Asset Banking and PSU Debt Fund invests in debt instruments of scheduled commercial banks and PSU enterprises. While investment in debt instruments of PSU enterprises has zero risk, investing in bank debt instruments are still risky. On other hand, interest rates are expected to further fall or remain at this level for the next couple of years that might increase the bond yield. In such scenario, investing in these debt funds could be the best bet. One can expect 7-10% returns from such funds, though not guaranteed. If you are a moderate risk taker and willing to invest for 1-3 years time frame, one can invest in some of the top performing banking and PSU debt funds. If you still want to test new funds in this category, you can invest in this fund else avoid new funds.

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Suresh KP

Mirae Asset Banking and PSU Debt Fund NFO Review

Suresh KP

10 comments

  • kuldeep

    Thank you so much for sharing details. I felt so connected while reading the article and your response to the user questions. Thank you again for your service.

  • Prasad

    Thanks a lot for sharing valuable information.

  • Rajesh

    Dear Suresh,

    Thanks for researching and sharing the article. Can you please also tell us about the taxes? as this is a debt fund, I believe 20% long term capital gains applicable for this MF.

  • Sreekesh M

    Sir
    Is it better go with NFO or PPF Account.

    • This would depend on your risk appetite and tenure of investment which you would like to invest. If you are moderate risk taker and expecting 7% to 10% annualised returns for short term of 1-3 years, you can invest in such mutual funds. If you are low risk investor and okay with fixed returns of around 7% odd returns (which would change every year) and willing to invest for 15 years, you can invest in PPF

  • Alok Varma

    Thanks for sharing.

    • Glad to know you liked this article. Do you think any additional info would be useful for you to make decision about investing in such funds? If yes, let me know so that I can improve it.

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