Banking and PSU funds have given a return of 10.92 per cent over the past year. They invest mostly in bank certificates of deposit and bonds of public sector companies. These funds are much in demand currently because investors have been worried about credit risk for the past year or so.
These funds do a good job of minimising credit risk. However, they do carry some degree of interest rate risk. In an environment where rates are rising, these funds could give negative returns.
Hence, investors should not make the mistake of thinking that these funds are completely without risk.