ITI Banking and PSU Debt Fund NFO – Is this better fund compared to corporate debt funds?

ITI Banking and PSU Debt Fund NFO Review

ITI Banking and PSU Debt Fund NFO – Is this better fund compared to corporate debt funds?


ITI Mutual Fund is planning to launch Banking and PSU Debt fund. This New Fund Offer would open for subscription on October 5, 2020. This is an open ended mutual fund that predominantly invests in debt instruments of banks, Public Sector Undertakings, Public Financial Institutions and Municipal Bonds. Should you invest in ITI Banking and PSU Debt Fund NFO? What are the various risk factors associated with such funds?

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Issue details of ITI Banking and PSU Debt Fund (NFO)

This is an open-ended equity mutual fund scheme. Here are the NFO issue details.

Scheme Opens 05-Oct-20
Scheme Closes 19-Oct-20
Scheme reopens for continous purchase/sale 30-Oct-20
Scheme Plans Direct and  Regular
Growth and Dividend
Minimum investment (Lumpsump) Rs 5,000
Minimum investment (SIP) Rs 500 / 6 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Nil
Risk Moderately Low Risk
Max Total expense Ratio (TER) 2.00%
Benchmark CRISIL Banking and PSU Debt Index

Download ITI 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 investments in debt and money market instruments consisting predominantly of securities issued by entities such as Scheduled Commercial Banks (SCBs), Public Sector undertakings (PSUs), 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 ITI Banking and PSU Debt Fund?

This fund will be managed in a co-fund manager model. Co-managed by Mr. Milan Mody and Mr. George Heber Joseph.

What is the benchmark for this scheme?

The benchmark for this scheme is CRISIL 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 (including securitised debt) and Money Market Instruments issued by Scheduled Commercial Banks (SCBs), Public Sector Undertakings (PSUs), Public Financial Institutions (PFIs) and Municipal Bonds. The risk profile in this segment is low to medium.

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2) It would invest 0% to 20% Debt (including government securities) and Money Market Instruments issued by entities other than the above. 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.

4) The Scheme may take exposure into fixed income derivatives upto 50% of the net assets for hedging and portfolio rebalancing purpose.

Why to invest in the ITI Banking and PSU Debt Fund?

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

1) This fund would invest in debt instruments of Scheduled commercial banks, government entities and PSU enterprises. Such funds are considered to be safer compared to corporate bonds that invests in corporate debt instruments which are high risk.

2) This fund aims to invest in short and medium term options (2-5 years). This fund is good for short to medium term investors.

3) Since it invests in banks and PSU debt instruments, it provides high liquidity unlike corporate risk funds which invests in corporate debt papers and are high risk with 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.

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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 Government enterprises / PSU debt would have zero risk, there is credit risk 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, the risk is NOT eliminated.

3) It invests in REITS and InvITs which are considered as high risk.

3) You can refer complete risk factors of investing in this fund.

Are Banking and PSU Debt Funds better than other debt funds?

Just see below a snapshot comparing with other debt funds (This table prepared a couple of months back for a mutual fund review and analysis).

How did the banking and PSU debt funds performed in last 5 years

Performance of existing Banking and PSU Funds

Now, let us look at some of the top performing banking and PSU debt funds in 2020 (direct plans).

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Fund Name Annualised Returns
1 Year 3 Year 5 Year
Aditya Birla Sun Life Banking & PSU Debt Fund 10.6% 8.7% 9.1%
Edelweiss Banking and PSU Debt Fund 12.9% 9.9% 9.1%
Kotak Banking and PSU Debt Fund 10.7% 9.0% 9.0%
Nippon India Banking & PSU Debt Fund 11.2% 9.0% 9.0%
HDFC Banking and PSU Debt Fund 10.7% 8.7% 9.0%
Franklin India Banking & PSU Debt Fund 9.7% 9.0% 8.8%
Axis Banking & PSU Debt Fund 10.2% 9.3% 8.8%
SBI Banking and PSU Fund 10.4% 9.1% 8.8%
ICICI Prudential Banking & PSU Debt Fund 9.8% 7.9% 8.8%
DSP Banking & PSU Debt Fund 10.9% 8.6% 8.8%
IDFC Banking & PSU Debt Fund 11.4% 9.6% 8.7%
L&T Banking and PSU Debt Fund 10.7% 8.5% 8.7%
PGIM India Banking & PSU Debt Fund 10.6% 8.7% 8.7%
LIC MF Banking & PSU Debt Fund 9.3% 8.9% 8.5%
Invesco India Banking & PSU Debt Fund 9.2% 8.5% 7.8%
Sundaram Banking & PSU Debt Fund 8.9% 7.7% 7.8%
UTI Banking & PSU Debt Fund 9.1% 4.6% 6.6%

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

ITI 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 almost zero risk, investing in bank debt instruments are still risky. Interest rates are expected to further fall in the next few years that would increase the bond yield. In such scenario, investing in debt funds could be the best bet. Even these are better funds compared to corporate debt funds which invests in corporate debt instruments which are considered as high risk. One can expect 8-10% returns from such Banking and PSU Debt funds, though not guaranteed. If you are a moderate risk taker and willing to invest for 2-3 years time frame and want to test new funds, you can invest in this fund. Otherwise, you can invest in some of the top performing banking and PSU debt funds listed above.

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Suresh KP

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