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    Category Analysis

    Best Banking and PSU Funds 2026 (8% 3Y)

    Top Banking and PSU funds 2026 ranked by returns & risk. UTI Banking & PSU Fund leads at 7.7% 3Y returns. Compare performance, cost & risk side-by-side.

    AI GeneratedReviewed by Shivank RastogiUpdated 17 March 2026 4 min read

    Returns Comparison

    Return comparison across the ranked funds using trailing 1Y, 3Y, and 5Y performance.

    Rolling Returns

    Rolling return ranges show how consistently each fund has delivered over time.

    Max Drawdown

    Drawdown highlights the peak-to-trough downside each fund has faced in recent periods.

    Detailed Fund Metrics

    Fund NameAUM (Cr)Exp RatioAlphaSharpe Ratio1Y Ret3Y Ret5Y RetRoll 3YDD 1Y
    UTI Banking & PSU Fund Direct GrowthDebt • Banking and PSU
    ₹1101.430.200%3.44711.10067.710%7.700%7.450%7.76%0.41%
    ICICI Prudential Banking & PSU Debt Direct GrowthDebt • Banking and PSU
    ₹9583.500.390%3.47031.54047.440%7.840%6.760%7.93%0.34%
    Franklin India Banking & PSU Debt Fund Direct GrowthDebt • Banking and PSU
    ₹480.620.190%3.23741.43318.010%7.810%6.420%7.90%0.44%
    Kotak Banking and PSU Debt Fund Direct GrowthDebt • Banking and PSU
    ₹5495.350.400%3.91931.12747.650%7.900%6.640%7.95%0.55%
    TRUSTMF Banking & PSU Fund Direct GrowthDebt • Banking and PSU
    ₹130.720.210%5.04221.50917.260%7.520%6.170%7.52%0.45%

    Introduction: The Banking and PSU Category in March 2026

    The Banking and Public Sector Undertaking (PSU) mutual funds have become an increasingly appealing cornerstone for conservative and moderate investors in India seeking relatively stable returns while tapping into the public sector's robust credit stability. As we navigate 2026, the economic backdrop has been shaped by a stable interest rate environment and regulatory changes aimed at enhancing transparency and creditworthiness of public sectors. These funds typically suit investors looking to preserve capital with moderate growth prospects, offering an attractive blend of government-backed securities and selected private sector financial holdings. With market cycles reflecting a matured phase post the 2025 macroeconomic adjustments, this review provides a comprehensive comparison of top funds in this category to aid in informed decision-making.

    #1 Ranked: UTI Banking & PSU Fund Direct Growth — The Frontrunner

    UTI Banking & PSU Fund Direct Growth emerges as the leader in this category, not just for its top-ranked performance in the 5-year trajectory but also for its consistent ability to manage risk effectively. With a sharp net asset value (NAV) volatility of 0.88%, the fund presents itself as a paragon of stability, catering to investors with a low to moderate risk appetite. The fund's superior Sharpe ratio of 1.1006 affirms its prowess in generating 1.1 units of return per unit of risk, underscoring its efficient reward-to-risk profile.

    Remarkably, during the adjustment period in early 2025, when market contractions reared their heads, UTI deftly navigated a max drawdown of -0.41%, which it took 259 days to fully recover from, demonstrating commendable resilience during volatile conditions. The portfolio's concentration in sovereign bonds (8.46%) combined with strategic stakes in stalwarts like Kotak Mahindra Bank and Union Bank of India contribute to its robust performance. This deliberate selection of holdings mitigates risks associated with the capricious equity market, securing UTI’s position as a prudent choice for risk-averse investors aiming to maintain steady incremental gains.

    The Challengers: ICICI Prudential vs Franklin India

    When examining the competition, ICICI Prudential Banking & PSU Debt Direct Growth and Franklin India Banking & PSU Debt Fund Direct Growth offer intriguing contrasts in their methodology and resultant performance outcomes. ICICI Prudential excels with a slightly higher alpha (3.4703) compared to Franklin India’s 3.2374, highlighting its relatively better capability to outperform benchmarks. The fund's volatility stands at a slightly higher 1.02%, indicative of larger price swings—translating to a ₹96,000 equivalent annual fluctuation for a ₹1 lakh investor.

    On the other hand, Franklin India impresses with its top-notch one-year return (8.01%), driven by astute asset allocation that includes prominent stakes in REC Ltd. and the Government of India. While it encountered a minor drawdown of -0.44%, the fund’s quick 259-day recovery phase is commendable for its Moderate risk category.

    Notably, ICICI’s higher sovereign exposure (13.127%) potentially enhances its defensiveness against systemic risks. Still, Franklin's superior Sortino ratio (2.3245) indicates favorable performance during benign or falling markets, making it enticing for those prioritizing downside protection.

    Under the Radar: Kotak Banking and PSU Debt Fund & TRUSTMF Banking & PSU Fund

    Kotak Banking and PSU Debt Fund and TRUSTMF Banking & PSU Fund have garnered attention for their distinct strategic inclinations. Kotak, with moderate AUM of ₹5495.35 crore and an expense ratio of 0.40%, has been a steady performer. The fund's critical advantage lies in its high allocation to HDFC Bank and consistent exposure to sovereign securities, enabling it to weather drawdowns capped at -0.55%.

    Conversely, TRUSTMF enjoys an edge with the highest alpha (5.0422) among its peers, showcasing its capacity to capture more market opportunities. Although it has the lowest Nivesh Composite Score among its peers, TRUSTMF leverages its substantial sovereign exposure (15.63%), creating a stable foothold amidst market volatility. Despite a higher expense ratio, its Sortino ratio of 2.4558 suggests an efficient management of downside deviation, catering well to investors focused on downside risk management.

    The Final Verdict

    Choosing the ideal fund within the Banking & PSU mutual fund category depends largely on individual investment objectives. If capital preservation and lower volatility appeal to you, UTI Banking & PSU Fund emerges as the strongest contender, maintaining an impressive -0.41% drawdown and achieving steady growth with a low expense ratio. However, if an investor is attracted to maximizing long-term CAGR with a willingness to shoulder moderate fluctuations, ICICI Prudential Banking & PSU Debt Direct Growth—with its higher alpha and sovereign defensive play—offers enticing prospects. Ultimately, each fund presents a unique blend of sector exposure and return potential, affording investors tailored options to align with their risk appetite and financial aspirations.

    Optimize Your Specific Portfolio

    Our AI doesn't just rank funds; it analyzes your exact holdings to find overlap, high expenses, and underperformance.

    Our Methodology

    Nivesh Composite Score

    Funds are ranked using a min-max normalised composite score computed across all active funds in the same sub-category. Each metric is scaled 0–100 relative to category peers and then weighted:

    FactorWeightWhy it matters
    5-Year Return30%Long-term compounding ability
    3-Year Return30%Medium-term consistency
    1-Year Return20%Recent momentum
    Sharpe Ratio15%Return generated per unit of risk
    Alpha5%Outperformance vs benchmark

    A fund scoring 85/100 means it ranks in the top 15% of its category across all five dimensions combined.

    Rolling Returns (CAGR)

    We compute point-to-point CAGR from actual daily NAV data rather than relying on declared fund returns. For periods over 1 year, the formula is:

    CAGR = (Latest NAV ÷ Historical NAV)^(1/years) − 1

    NAV values are matched within a ±15-day window to handle weekends and market holidays. Periods covered: 6 months, 1 year, 3 years, and 5 years.

    Maximum Drawdown

    Drawdown measures the worst peak-to-trough fall a fund experienced over a given period. We track:

    • Max Drawdown %: The deepest decline from any previous all-time high within the window
    • Recovery Days: How many calendar days the fund took to climb back to its pre-drawdown peak (null = still recovering)

    We compute drawdowns over 1-year and 3-year windows from daily NAV data.

    Annualised Volatility

    Volatility is calculated as the standard deviation of daily logarithmic returns, annualised by multiplying by √252 (trading days per year). A fund with 18% annualised volatility means a ₹1,00,000 investment could swing by roughly ±₹18,000 in a typical year.

    Data Sources

    All NAV data is sourced from AMFI India. Performance metrics, holdings, and AUM figures come from fund house disclosures and are refreshed daily. Expense ratios, Sharpe ratios, Sortino ratios, and Alpha are sourced from standardised SEBI-mandated fund factsheets.

    Related Reads

    Top Recommended Funds

    #1 Rated
    Low to Moderate Risk

    UTI Banking & PSU Fund Direct Growth

    Alpha3.45
    Sortino2.00
    Roll 3Y7.76%
    DD 1Y0.41%
    Top Holdings
    GOI8.46%
    Export-Import Bank Of India6.85%
    Kotak Mahindra Bank Ltd.6.41%
    ₹1101.43 CrExp: 0.200%
    #2 Rated
    Moderate Risk

    ICICI Prudential Banking & PSU Debt Direct Growth

    Alpha3.47
    Sortino2.06
    Roll 3Y7.93%
    DD 1Y0.34%
    Top Holdings
    GOI13.11%
    REC Ltd.5.83%
    HDFC Bank Ltd.5.70%
    ₹9583.50 CrExp: 0.390%
    #3 Rated
    Moderate Risk

    Franklin India Banking & PSU Debt Fund Direct Growth

    Alpha3.24
    Sortino2.32
    Roll 3Y7.90%
    DD 1Y0.44%
    Top Holdings
    Uttarakhand State7.30%
    REC Ltd.6.95%
    GOI6.88%
    ₹480.62 CrExp: 0.190%
    #4 Rated
    Moderate Risk

    Kotak Banking and PSU Debt Fund Direct Growth

    Alpha3.92
    Sortino1.72
    Roll 3Y7.95%
    DD 1Y0.55%
    Top Holdings
    HDFC Bank Ltd.10.15%
    GOI8.03%
    Power Finance Corporation Ltd.7.97%
    ₹5495.35 CrExp: 0.400%
    #5 Rated
    Moderate Risk

    TRUSTMF Banking & PSU Fund Direct Growth

    Alpha5.04
    Sortino2.46
    Roll 3Y7.52%
    DD 1Y0.45%
    Top Holdings
    GOI15.63%
    REC Ltd.10.86%
    National Bank For Agriculture & Rural Development10.78%
    ₹130.72 CrExp: 0.210%