Disadvantages of Banking and PSU Funds
1. Low Return: These funds have high demand in the market, as there are minimal risk factors associated with this fund. However, these funds generate lower returns to investors as there is no substantial fluctuation in the stock price of PSU and banks, hence the returns are not substantial.
2. Not Ideal for Long Term: Such banking and PSU funds are not an ideal instrument for investors who are looking for long-term investment, people with short-term goals prefer banking and PSU funds.
3. No Guarantee of Success: The allocation of securities in Banking and PSU Funds stands different between different fund managers or AMC, so the returns will also differ as per the allocation. The portfolio by nature gives the investor an element of discretionary exposure due to the ability that the fund manager possesses to change the mix of securities and selection of the PSU sector in the fund.
4. No Customisation: The dynamics of investments in banking and PSU funds can not be controlled by investors, as it depends upon the asset management company or fund manager in which they are investing. The investor does not directly invest in the asset rather they invest in the fund, which contains different asset classes, and an investor can not customize his investment in the asset class.
5. Taxation on Short-Term Holding: If an investor holds Banking and PSU Funds for a short-term duration, say 1 year, he/she shall be liable to pay tax as per their applicable income tax slab rates, and no benefit of indexation will be available.