Thematic PSU Mutual Funds

Thematic PSU mutual funds are a class of equity funds that concentrate their portfolio towards equities of public sector undertakings (PSU).
What are Thematic PSU Mutual Funds
3 min

Thematic funds are among the different types of mutual funds in India. They invest in a basket of companies across sectors and industries that share the same theme as that of the funds.

In this article, we are going to explore what thematic PSU mutual funds are, their benefits and risks and a few factors that you should keep in mind before investing in them.

What are Thematic PSU mutual funds?

Thematic PSU mutual funds invest exclusively in public sector undertakings (PSUs). Public sector undertakings are companies where the government of India or the various state governments hold the controlling stake (51% or more). These entities often play a significant role in various key sectors of the Indian economy such as energy, infrastructure, banking and financial services and capital goods.

Although the portfolio of stocks may vary depending on the type of thematic PSU mutual fund you choose, most funds have stocks across multiple industries and market capitalisations to diversify risk.

Who should consider investing in thematic PSU mutual funds?

Now that you know what a thematic PSU mutual fund is, let us look at who this mutual fund is for.

If you are looking to gain exposure to some top-performing public sector undertakings across multiple sectors and industries, you could consider investing in thematic PSU mutual funds.

That said, despite the inherent diversification, thematic PSU mutual funds still carry a high level of risk since the portfolio is concentrated on public sector undertakings. So, if you are an investor with a fairly high level of risk tolerance and a long-term investment horizon, you may find these funds suitable.

However, remember to conduct thorough research and compare multiple thematic PSU mutual funds to ensure that they match your risk tolerance level and investment objectives before you invest in these funds. Invest in thematic PSU mutual funds or 1000+ other mutual fund options on the Bajaj Finserv Mutual Funds platform.

Taxability of thematic PSU mutual funds

As a potential investor, it is not enough to merely understand the meaning of thematic PSU mutual funds; you also need to know how the returns from these funds are taxed. Here is an overview of the taxability aspect of thematic PSU funds

  • Taxability of dividends
    The dividends you receive from your thematic PSU mutual fund investments are added to your total income and taxed according to the income tax slab rate applicable to you.
  • Taxability of capital gains
    The returns/profits you receive from the sale of your thematic PSU mutual fund investments are classified as capital gains as per the Income Tax Act, 1961. If your total holding period is less than 12 months, the returns are classified as short-term capital gains (STCG) and are taxed at a flat rate of 15%.
    On the other hand, if your total holding period is more than 12 months, the returns are classified as long-term capital gains (LTCG) and are taxed at a flat rate of 10%. However, only LTCG of more than Rs. 1 lakh are subject to tax.
    This means that if your long-term returns from a thematic PSU mutual fund are less than Rs. 1 lakh, you do not have to pay any tax on the gains. If your returns exceed Rs. 1 lakh, only that portion of the returns that is more than the limit is taxed. Also read about Income Tax slabs of FY 24-25 for taxation..