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Thematic PSU mutual funds are a class of equity funds that concentrate their portfolio towards equities of public sector undertakings (PSU). We have covered the following in this article on the best thematic PSU mutual funds:
As the name suggests, thematic PSU mutual funds construct their portfolio in such a way that most of their asset allocation is made towards the equity shares of the state-owned companies. By investing in a thematic PSU fund, you get exposure to a diversified portfolio constituted by top-performing PSUs across sectors.
Investors who are looking to gain exposure to a well-constituted portfolio having exposure to public sector undertakings across sectors may consider investing in a thematic PSU fund. These funds give you the benefit of diversification as it invests in state-owned companies across all sectors.
Since PSUs issue the underlying securities of these funds, there is a high risk of concentration involved. Therefore, investing in a thematic PSU fund is suitable for only those willing to bear higher levels of risk. If you are a risk-averse investor or someone looking to diversify your portfolio, then you may not consider investing in these funds.
The dividends offered by any mutual fund scheme are added to your overall income and taxed at the income tax slab rate you fall under. Until Budget 2020, dividends were made tax-free in the hands of investors as the companies paid the dividend distribution tax (DDT).
Redemption of units within a holding period of one year results in short-term capital gains. These gains are taxed at 15%, irrespective of your income tax slab rate. You get long-term capital gains on selling your fund units after a holding period of one year. These gains of up to Rs 1 lakh a year are made tax-exempt. Any gains over this limit attract long-term capital gains tax at 10%, with no indexation being allowed.
Thematic PSU mutual funds are associated with a high level of concentration risk as their portfolio mostly includes equity-linked securities of state-owned companies. Other than that, these funds also carry market risk and volatility risk.
Market risk is the probability of your investment’s worth reducing due to adverse market developments. Volatility risk is the possibility of your investment’s value going down due to a sudden drop in the price of the underlying securities.
You get the following benefits by investing in a thematic PSU mutual fund:
You have to consider the following factors before investing in a thematic PSU mutual fund: