Canara Robeco Banking and PSU Debt Fund NFO – Review

Canara Robecco Banking and PSU Debt Fund - NFO Issue Details, and ReviewCanara Robeco has launched Banking and PSU Debt Fund NFO now. This New Fund Offer would open for subscription on 29th July, 2022. 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 Canara Robeco Banking and PSU Debt Fund NFO? What are the various risk factors associated with such funds?

Also Read: List of Mutual Funds that gave highest SIP returns in last 10 years

Canara Robeco Banking and PSU Debt Fund NFO – issue details

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

Scheme Opens 29-Jul-22
Scheme Closes 12-Aug-22
Scheme reopens for continuous purchase/sale 29-Aug-22
Minimum Lumpsum Rs 5,000
Minimum SIP Rs1,000 for 12 months
NAV of the fund Rs 10 during NFO period
Entry Load Nil
Exit Load Nil
Risk Low to Moderate Risk
Benchmark CRISIL Banking and PSU Debt Index
Fund Manager Mr.Avnish Jain
Max TER 2.25%

Canara Robeco Banking and PSU Debt Fund Product Brochure

What is the investment objective of this MF scheme?

To generate income and/or capital appreciation through a portfolio of high-quality debt and money market instruments issued by entities such as Banks, 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.

What is the allocation pattern in this mutual fund?

This fund invests pattern is as follows:

Type of instruments Min % Max % Risk Profile
Debt and Money Market Instruments issued by Banks, Public Financial Institutions (PFIs), Public Sector Undertakings (PSUs) and Municipal Bonds 80% 100% Low to Medium
Debt (including securities issued by Central and State Governments) and Money Market Instruments issued by entities other than Banks, PFIs, PSUs and Municipal Bonds 0% 20% Low to Medium
Units issued by REITs and InvITs 0% 10% Medium to High

Why to invest in the Canara Robeco Banking and PSU Debt Fund NFO?

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

1) This fund aims to invest in High Grade Assets that are either from PSU’s or from systemically important banks or entities. This provides lower credit risk.

2) This scheme would focus on investing primarily in AAA rated bonds issued by banks and PSU’s.

3) This fund aims to maintain “High Credit Quality” portfolio, which can provide higher liquidity benefit.

4) This scheme invests in short and medium term securities (3-4 years), hence good for investors looking for short to medium term.

5) Banking and PSU debt funds segment performed well and gave higher returns in the last few years compared to other debt funds.

Risk factors of investing in these funds

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

1) Such funds have interest rate risks (interest rate increases, bond yield fall). During raise in interest rates, the NAV of the fund would fall.

2) While investment in Government enterprises / PSU debt would have zero risk, there is credit risk in commercial bank debt instruments. If the credit ratings of such commercial banks go down, the value of the bonds invested in such banks would also 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 have a presence in India. Recent incidents about Yes Bank crisis and then Lakshmi Vilas Bank are classic examples about risk in banks. Hence, the risk is NOT eliminated.

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

4) You can refer complete risk factors in NFO Scheme Information documents.

Performance of existing Banking and PSU Funds

Here is the list of existing banking and psu debt funds that have generated 5.5% to 7.7% annualized returns in the last 3 to 5 years. Since interest rates were low during covid pandemic, last 1 year returns are low.

Scheme Name  1 Yr 3 Yrs 5 Yrs
Edelweiss Banking and PSU Debt Fund 2.8% 7.3% 7.7%
IDFC Banking & PSU Debt Fund 3.0% 7.0% 7.4%
Axis Banking & PSU Debt Fund 3.3% 6.6% 7.3%
Kotak Banking and PSU Debt Fund 3.4% 6.8% 7.2%
Nippon India Banking & PSU Debt Fund 3.0% 7.0% 7.2%
Franklin India Banking & PSU Debt Fund 3.1% 6.4% 7.1%
SBI Banking and PSU Fund 2.4% 6.2% 7.1%
Aditya Birla Sun Life Banking & PSU Debt Fund 3.3% 6.7% 7.0%
HDFC Banking and PSU Debt Fund 3.0% 6.9% 7.0%
PGIM India Banking & PSU Debt Fund 3.3% 6.7% 7.0%
LIC MF Banking & PSU Debt Fund 2.9% 5.8% 6.9%
DSP Banking & PSU Debt Fund 2.7% 6.6% 6.8%
ICICI Prudential Banking & PSU Debt Fund 3.8% 6.6% 6.7%
L&T Banking and PSU Debt Fund 1.1% 6.1% 6.4%
Invesco India Banking & PSU Debt Fund 1.0% 5.5% 6.3%
Sundaram Banking & PSU Debt Fund 2.1% 5.3% 5.9%
UTI Banking & PSU Debt Fund 9.4% 7.1% 5.5%

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Should you invest in Canara Robeco Banking and PSU Debt Fund NFO?

This Banking and PSU Debt Fund invests in debt instruments of scheduled commercial banks and PSU companies. While investment in debt instruments of PSUs has zero risk, there is an element of risk of investing in bank debt instruments. The returns in the last 3 to 5 years indicate 5.5% to 7.7%. However, once the interest rates are up in the coming quarters, the returns from such funds can go up in future.

If you are falling in the below category, you can invest in such schemes:

1) Investors who want to get exposure to banks and PSU securities.

2) Investors with low to moderate risk appetite

3) Investors who are looking to invest for 3 to 5 years time frame.

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Suresh KP

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