Top Performing PSU Mutual Funds

Mutual funds that focus on public sector undertakings (PSUs) have gained increased attention from investors in recent years. These funds typically invest in companies that are majority-owned by the government and span various sectors of the economy.

As part of a broader investment strategy, PSU mutual funds can offer exposure to a unique segment of the market. They are managed by professional fund houses and aim to deliver consistent returns over the medium to long term.

This article covers some of the top-performing PSU mutual funds available today. It highlights their recent performance and helps investors explore options that align with their financial goals and risk appetite.

Understanding Public Sector Undertaking (PSU) Mutual Funds

Public Sector Undertaking (PSU) mutual funds are equity schemes that primarily invest in companies owned or significantly controlled by the Government of India. These funds focus on sectors like banking, energy, defence, and infrastructure, where PSUs play a dominant role.

The objective of PSU mutual funds is to generate capital appreciation by tapping into the growth potential of state-run enterprises. These funds are professionally managed and may suit investors who believe in the long-term performance of government-backed companies.

Although PSU stocks may face short-term market challenges, their strategic importance and consistent policy support make them an attractive option for risk-aware investors. PSU mutual funds provide diversified exposure and are often chosen for long-term wealth creation.

SBI PSU Fund – Direct Plan

The SBI PSU Fund focuses on investing in publicly owned enterprises across large, mid, and small-cap segments. With notable exposure to sectors like energy and financial services, it seeks to capitalise on the stability and long-term growth potential of India's public sector. Key holdings typically include top-performing PSUs such as SBI, GAIL, and Power Grid. This fund is suitable for investors looking to align their portfolios with India’s infrastructure and policy-driven growth story, offering a blend of consistent performance and sectoral focus. It appeals to those comfortable with equity risk and seeking diversification within government-backed companies.

Aditya Birla Sun Life PSU Equity Fund – Direct Plan

This fund provides focused exposure to public sector undertakings, primarily large-cap government-owned companies. It maintains a concentrated portfolio across key sectors such as energy, financials, and capital goods. Regular top holdings include NTPC, SBI, and Power Grid. With a strong focus on high-quality PSU stocks, the fund targets long-term capital appreciation through sectoral opportunities and economic reforms. It is suitable for moderately aggressive investors who believe in the revival and efficiency improvements of state-owned enterprises and prefer a low-cost fund structure to enhance long-term returns.

Invesco India PSU Equity Fund – Direct Plan

With a diversified portfolio spanning large, mid, and small-cap PSUs, this fund takes a growth-oriented approach to public sector equity investing. It typically invests in top government-owned companies like BEL, BPCL, and Power Grid, with strong sectoral weights in energy and capital goods. Its long-standing track record reflects resilience through market cycles. The fund is best suited for investors with a higher risk appetite, aiming for long-term wealth creation through focused exposure to India's public sector reforms and economic expansion, particularly in core infrastructure and industrial sectors.

ICICI Prudential PSU Equity Fund – Direct Plan

This newer entrant to the PSU equity category seeks to generate long-term growth by investing predominantly in large-cap public sector firms. Its portfolio focuses on sectors like energy and financial services, with companies such as NTPC, ONGC, and SBI being key holdings. While the fund has limited historical performance data, its positioning is aggressive, aligning with investors who believe in India’s PSU-led economic development. It's ideal for those comfortable with near-term volatility in exchange for the potential upside from policy changes and sectoral tailwinds affecting government-backed enterprises.

Quant PSU Fund – Direct Plan

One of the most recently launched PSU equity funds, this scheme adopts a bold strategy with concentrated bets in energy, insurance, and financial services. Key holdings often include NTPC, LIC, and Indian Oil. While its short track record may not yet reflect its potential, the fund aims to capture value from underpriced PSU stocks undergoing transformation. This fund is designed for aggressive investors with a long-term view, who are comfortable with high volatility and are looking to benefit from thematic exposure to India's public sector ecosystem.

Factors Contributing to the High Returns of These PSU Mutual Funds

Several factors have contributed to the strong performance of PSU mutual funds in recent years:

Policy Support

• Government initiatives and reforms aimed at reviving and strengthening PSUs have led to improved investor confidence and stock performance.

Undervaluation Advantage

• Many PSU stocks were historically undervalued, allowing mutual funds to capitalise on their price recovery.

Strong Dividend Yields

• PSUs are known for paying consistent dividends, which can support returns even in volatile markets.

Sector Revival

• Revival in sectors like banking, power, and infrastructure has directly benefited PSU-heavy portfolios.

Improved Balance Sheets

• Debt reduction and better capital allocation by public enterprises have led to improved financials, boosting fund performance.

Suitable Investors for PSU Mutual Funds

PSU mutual funds are well-suited for investors who are comfortable with moderate risk and have a long-term investment horizon. These funds may appeal to individuals who believe in the growth of government-backed enterprises and wish to benefit from public sector reforms and infrastructure expansion.

They can be a good option for those looking to diversify their equity portfolio by including companies from sectors like banking, energy, and defence. Conservative investors seeking relatively stable performance from established firms may also consider these funds.

However, as these funds are sector-focused, they may not be ideal as a core holding. Instead, they work better as a satellite allocation within a diversified investment strategy.

Benefits of Investing in PSU Mutual Funds

Government-Backed Stability

• PSU companies are backed by the Government of India, offering a sense of stability and lower default risk compared to private firms.

Attractive Valuations

• Many PSUs are available at lower price-to-earnings ratios, allowing investors to enter at favourable valuations for long-term growth.

High Dividend Potential

• PSU companies are known for distributing steady dividends, offering a source of income in addition to capital appreciation.

Sectoral Exposure

• These funds provide exposure to key sectors like banking, energy, defence, and infrastructure, which are critical to India's growth.

Policy Support and Reforms

• Government-led initiatives and reforms in disinvestment and recapitalisation can boost the value of PSU holdings over time.

Diversified Risk

• PSU mutual funds invest in a basket of public sector companies, helping spread risk across industries and assets.

Conclusion

PSU mutual funds have emerged as a strong option for investors seeking exposure to government-backed enterprises with long-term growth potential. With improving fundamentals, increased government support, and reforms across sectors like banking and infrastructure, many public sector companies are delivering better returns than before.

These funds offer a blend of stability and opportunity, especially for those willing to take a slightly sector-focused approach. While not without risks, PSU mutual funds can add value when used as part of a diversified portfolio.

For investors looking to benefit from India’s ongoing public sector revival, these funds present a practical and professionally managed route to participate in the country's core economic development.