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Aditya Birla Sun Life PSU Equity Fund fit for diversification

Mutual fund investors looking to diversify their equity portfolios can consider to invest in the new scheme launched by Aditya Birla Sun Life Mutual Fund.

, ET Bureau|
Updated: Dec 11, 2019, 10.16 AM IST
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Investors looking for diversifying their equity portfolios could consider the new fund offer (NFO) of Aditya Birla Sun Life PSU Equity Fund as shares of many state-owned companies are near their lowest levels in a decade and the government's privatisation programme is expected to boost them. Wealth advisors said first time and conservative investors should stay away from it.

“Current valuations of PSUs along with high dividend yield provide a good margin of safety,” said Mahesh Patil, chief investment officer (equity), Aditya Birla Sun Life Mutual Fund. Patil said PSUs have paid out 27% of their market cap as dividends in the last five years.

CPSEs (central public sector enterprises) have been mandated by the government to pay a minimum annual dividend of 30% of their net profit or 5% of their net-worth, whichever is higher, according to the fund house.

Currently, the S&P BSE PSU Index trades at a price to earnings (PE) ratio of 11.79 times, which is a 30% discount to its long-term average. This discount reflects the underperformance of these stocks in recent years.

The buzz around PSU stocks is partly due to the government’s decision to sell its entire stake in companies such as Bharat Petroleum Corporation, Shipping Corporation of India and Container Corporation of India.

Financial planners said conservative investors would be better off with diversified equity mutual funds, which gives total flexibility to a fund manager to pick and choose stocks.

“In a diversified equity fund, a fund manager buys companies which are best allocators of capital. If there is a good PSU allocator it will automatically come in there, ” point Vishal Dhawan, chief financial planner, Plan Ahead Wealth Managers.
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