Investors, who are looking for an opportunity to own pubic sector undertakings (PSUs) due to their long-term growth prospects and strong balance sheets, can look at investing in Baroda Pioneer PSU Equity Mutual Fund.
Baroda Pioneer PSU Equity Fund is similar to SBI PSU Equity Fund and Religare PSU Equity Fund. The fund aims to provide investors with opportunities for long-term growth in capital through an active management of investments in a diversified basket of PSUs.
The scheme will invest 65% to 100% of assets in equity and equity-related securities covered under the universe of PSUs including derivatives with medium-to-high risk profile. It will further allocate up to 0% to 35% of assets in debt and money market instruments with a low-to-medium risk profile. The scheme’s will be benchmarked against BSE’s PSU Index.
The fund manager will invest in shares of PSUs across sectors and market capitalisations, with not more than 10% in any single company. The total portfolio will consist of around 30-35 PSU stocks.
The Big Opportunity: Many PSU companies are leaders in their sectors and in many cases have a virtual monopoly in their line of business. Most PSU companies exist in sectors, core to India’s growth story. A lot of PSUs have clean balance sheets which are virtually debt-free. They also have huge cash on their books, which could come in handy for funding expansion. Investors prefer PSUs due to good corporate governance, higher dividend payment and yields.
Risks: Investing in PSU space is considered a thematic investment. However, PSUs are perceived as low-risk when compared to a sector fund which invests in a number of PSU companies across various sectors. However, investors must note that the working results of a number of PSU companies depend on government policies. In a lot of cases, optimising returns for shareholders will not be their only objective.
Why invest?: If you want to own a chunk of PSU bluechips and benefit from the divestment story
Why not invest: The fund can miss out on opportunities coming in the private sector due to its mandate
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