Mutual Funds Increase PSU Bank Investments To 3-Year High

Mutual funds increased their holdings in the Public Sector Undertaking (PSU) banks in January, pushing the sector’s share in their portfolios to the highest level in three years.

According to data released by Motilal Oswal Financial Services, PSU banks accounted for 3.7% of mutual fund equity holdings in January. This was higher than the 3.4% recorded in October, November and December 2025.

The increase is more visible when compared with last year. In January 2025, PSU banks had a portfolio share of 2.8%.

How Has Allocation Changed?

The rise in allocation has been gradual over the past several months.

In September 2025, mutual fund exposure to PSU banks stood at 3.3%. This was higher than the 3% level seen in July and August of that year.

Earlier data showed that between July 2024 and June 2025, the allocation remained largely between 2.8% and 2.9%. The highest allocation before that period was 3.5% in February 2024.

The report also noted that PSU banks had a weight of 4.1% in the BSE 200 index.

Some mutual fund houses had exposure higher than this level. These included Aditya Birla Sun Life Mutual Fund, HDFC Mutual Fund, Kotak Mutual Fund, Nippon India Mutual Fund and SBI Mutual Fund.

Who Led The Exposure?

The State Bank of India (SBI) remained among the top five stocks witnessing the maximum rise in value. SBI recorded an increase of ₹96.6 billion in value. Axis Bank and ICICI Bank also saw gains of ₹92.2 billion and ₹54.9 billion, respectively.

Other stocks that recorded gains included Bharat Electronics, NTPC, Coal India, Biocon, Tata Steel, UltraTech Cement and BSE.

SBI Mutual Fund bought 62.47 lakh shares of SBI. Nippon India Mutual Fund added 1.27 lakh shares, while Sundaram Mutual Fund bought 3.74 lakh shares.

Axis Mutual Fund and Aditya Birla Sun Life Mutual Fund bought 30.29 lakh and 1.97 lakh shares, respectively.

At the same time, some fund houses reduced their holdings. HDFC Mutual Fund sold 35.96 lakh shares, while UTI Mutual Fund sold 6.78 lakh shares. Mirae Asset Mutual Fund and DSP Mutual Fund sold smaller quantities. Tata Mutual Fund and Canara Robeco Mutual Fund also sold shares during the month.

How Did PSU Bank Funds Perform?

Exchange-Traded Funds (ETFs) and Index Funds linked to PSU banks have reported strong gains over the past six months.

Among PSU ETFs, DSP Nifty PSU Bank ETF and Mirae Asset Nifty PSU Bank ETF showed the highest returns of 30.61%. HDFC Nifty PSU Bank ETF recorded returns of 30.50%.

The SBI BSE PSU Bank Index Fund, which tracks PSU bank stocks, gained 28.09% during the same period.

The Nifty PSU Bank Total Return Index rose 30.71% over the past six months, according to data.

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What Does It Mean For Investors?

The data shows that fund managers are showing high confidence in PSU banks. Improved financial performance, stronger balance sheets and better profitability appear to be supporting this trend.

The trend indicates growing institutional confidence in PSU lenders, though allocations may remain sensitive to valuation and credit cycle expectations.

Sources

The Economic Times