Mutual Funds Increase Exposure to PSU Banks in September 2025

Mutual funds significantly raised their holdings in public sector banks (PSUs) in September 2025. Allocation rose to 3.3%, up 30 basis points from July and August. Year-on-year, this marks a 70-basis-point increase, signalling renewed institutional confidence.

PSU banks now make up 3.5% of the BSE 200 index, reflecting their growing importance in the market. This shift comes as investors seek stable returns amid improving earnings and asset quality.

Strong Earnings and Credit Growth

SBI was among the top five stocks by value gain, with 15 mutual funds increasing holdings. Invesco MF acquired 99.18 lakh shares of Bank of Baroda, while Quant MF bought 2.28 crore shares of Canara Bank. Indian Bank, however, saw a 1.7% decline in mutual fund holdings.

The rising interest also extends to PSU-focused ETFs. Eight new ETFs launched in the past six months allow investors to access a diversified basket of PSU bank stocks.

Top-Performing Nifty PSU Bank ETFs

Note: These numbers are indicative. 

Nippon BeES leads long-term returns and liquidity. ICICI Prudential is cost-efficient with solid 3-year growth, while DSP ETF is cheapest but least liquid.

Shift from Private Banks to PSU Lenders

Mutual funds trimmed exposure to private sector banks for the third month, dropping to an eight-month low of 17.3%. At the same time, allocations to NBFCs rose to 5.8%, a 17-month high.

This rotation shows a focus on stability, improving margins, and strong credit growth in state-run institutions. Investors are favouring safer bets amid broader financial realignment.

Read more: Kotak Mutual Fund Continues Gold Silver Passive FoF Despite Silver Premium Pressure.

Conclusion

September 2025 marked a revival in PSU bank interest. With strong ETF returns, rising SBI holdings, and growing NBFC exposure, mutual funds are showing renewed confidence in India’s state-owned banks.

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Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions. 

Mutual fund investments are subject to market risks. Read all the related documents carefully before investing.