PSU equity mutual funds lose up to 17% in three months. Still invested?

PSU theme based mutual funds have offered a negative average return of around 13.34% in the last three months. Five PSU mutual funds have marked their presence in the market over the last three months.

Quant PSU Fund lost the most of 17.68% in the last three months. CPSE ETF, the largest PSU fund based on assets managed, delivered a negative return of around 14.85% in the mentioned period.


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Aditya Birla SL PSU Equity Fund lost 13.32% in the same time frame. Invesco India PSU Equity Fund, the oldest PSU fund, posted a negative return of 12.57% in the same period. SBI PSU Fund and ICICI Prudential PSU Equity Fund lost 11.04% and 10.60% respectively in the last three months.

These funds have delivered stellar performance in the long term. After this performance, many investors made investments in these funds. So, after a stellar performance what factors affected the performance of these funds?

The expert believes that the recent returns of these funds should be looked at via the mean reversion framework. Recent investors can expect underperformance from these funds in the short term.

“Investors should look at the performance of high-risk thematic funds like PSU Equity funds over a 5 year time period. PSU equity funds have delivered returns far above their average long-term returns, in the last 18-24 months. The recent returns of these funds should be looked at via the mean reversion framework. Equity markets returns can be backended,” said Manish Kothari, Co-founder & CEO, ZFunds.

The performance by PSU mutual funds was negative in the last six months as well. These schemes lost up to 6% in the last six months.

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In the last one year, PSU funds offered up to 57% return. These gave an average return of 50.33% in the last one year with the highest return offered by CPSE ETF of around 56.78%. SBI PSU Fund gave 52.31% return in the same period. Invesco India PSU Equity Fund and Aditya Birla SL PSU Equity Fund gave 49.17% and 43.16% returns, respectively.

After the recent underperformance, should investors use this opportunity to allocate more in these funds or go for other sectoral or thematic funds? What is the outlook for these funds?

The expert recommends that investors should stay invested in these funds. Recent investors can expect some underperformance in the short-term and one should consider these funds only if thematic funds, which are very high-risk funds, are the part of their portfolio asset allocation.

“Recent investors in these funds can expect underperformance in the short term from these funds. They should stay invested if these funds are part of their portfolio’s broader asset allocation,” said Kothari.

“Investors should consider allocation in these funds only if thematic funds, which are very high-risk funds, are part of their portfolio asset allocation,” he added.

PSU funds are thematic funds that invest in stocks of public sector undertakings or PSUs. These companies are government-owned. So they are influenced by government policies on sectors they are operating.

You should invest in these schemes only if you have a long investment horizon or have intimate knowledge about the sector to time the entry and exit in these schemes. Remember, every sector or theme can go out of fashion depending on the economic conditions. You should not make hasty decisions in those phases.

(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)

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