Good, but don't go overboard

With the government planning to raise Rs 40,000 crore through divestment in public sector units (PSUs), retail investors have a good investment avenue. No wonder mutual funds want to attract them by launching PSU schemes.

When SBI Mutual Fund launched its PSU fund last month, the company’s Managing Director and CEO Achal Kumar Gupta said: “PSUs have tremendous growth potential. They have helped in creating a diversified industrial base for the country.”

SBI Mutual Fund’s new fund offer, which closes on June 14, will invest in stocks of domestic public sector undertakings and in debt and money market instruments issued by these companies.

UTI Mutual Fund, Religare Mutual Fund and Sundaram BNP Paribas Mutual Fund had launched similar funds last year.

Returns from these funds have been quite impressive. As on June 7, UTI Top 100 Funds had given 9 per cent returns in the last one year, against 11 per cent returns from the Bombay Stock Exchange (BSE) Sensex. This is even better than BSE’s PSU Index, which returned 7.41 per cent in the period.

Others like Religare PSU Equity Fund returned 3.38 and 3.27 per cent over three months and six months, respectively. Sundaram PSU Opportunities gave 0.5 per cent over three months.

There is a strong case for investing in PSU funds. V V Anand, executive vice-president, SBI Mutual Fund, said: “The PSU Index has outperformed the Sensex in the last 10 years. Therefore, we believe there is immense unlocked potential in these companies.” In the last 10 years, the PSU Index has returned over 805 per cent, while the Sensex has given almost 251 per cent returns.

Experts believe that given the scale, the size and the reasonable valuation of most PSUs, holding these stocks can be a good bet from a risk-reward perspective.

The PSU theme looks promising on the back of strong fundamentals of these companies, most being leaders in their sectors. During the economic slowdown, they showed greater resilience than their private sector counterparts.

The new norm of minimum 25 per cent public holding in all listed companies will help investors get a good value for money and choice of companies, say experts.

However, one should avoid investing directly in these stocks if he/she lacks the knowledge of the stock market. It is advisable to take the mutual fund route in such a case.

However, all PSU funds in the market do not have a proven track record, for they have been around for hardly three to six months.

Mukesh Dedhia, director, Ghalla Bhansali Stock Brokers, said: “Concentrate on equity diversified funds as most of these invest in government companies.”

For instance, HDFC Top 200 holds PSU heavyweights like State Bank of India (SBI), Punjab National Bank, GAIL, NTPC, ONGC and Oil India. Similarly, Reliance Regular Savings Equity Growth invests in SBI, ONGC, GAIL, HPCL, Indian Bank and Hindalco.

As an investor, if you have good equity funds, there is a strong likelihood that you already have exposure to most of these stocks. But, if you want to invest in the theme, it should not account for more than 20 per cent of your equity portfolio.

“Such funds are not meant for small portfolios (who invest up to Rs 10,000 by way of systematic investment plans), but help the bigger ones to diversify further,” said Pankaj Mathpal, a certified financial planner.