Mutual funds raise investments in PSU banks in September, weight hits 17-month high

Mutual funds have increased their investments in PSU banks, with the sector’s weight climbing to a 17-month high in September.

The allocation rose to 3.3%, marking a 30-basis-point increase month-on-month from 3% in July and August 2025. On a yearly basis, the weight jumped 70 basis points from 2.6% in September 2024, according to a report by Motilal Oswal Financial Services.

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The weight of PSU banks in May 2024 was at the same level of 3.3%, the report highlighted.

The report further highlighted that the allocation to PSU banks in the BSE 200 index stood at 3.5%. Several fund houses — including Aditya Birla Sun Life Mutual Fund, Bandhan Mutual Fund, DSP Mutual Fund, HDFC Mutual Fund, Kotak Mutual Fund, Nippon India Mutual Fund, SBI Mutual Fund, Sundaram Mutual Fund, and UTI Mutual Fund — had an allocation of over 3% during the period.

According to the report, State Bank of India (SBI) was among the top five stocks that saw the highest rise in value. Around 15 funds bought SBI shares, while five funds trimmed their holdings.

Invesco Mutual Fund added about 99.18 lakh shares of Bank of Baroda, and Quant Mutual Fund purchased 2.28 crore shares of Canara Bank in September. Meanwhile, Indian Bank featured among the bottom 30 stocks by change in shareholding, with mutual fund holdings declining 1.7% month-on-month to 142.7 lakh shares in September.

On the other hand, private banks’ weight moderated for the third straight month, slipping to an eight-month low of 17.3% in September 2025 — down 20 basis points month-on-month, but up 120 basis points year-on-year.

In September 2025, mutual funds increased exposure to NBFCs, PSU banks, metals, automobiles, capital goods, oil & gas, utilities, and real estate, leading to a month-on-month rise in their sectoral weights. The NBFC weight also climbed to a 17-month high of 5.8% during the month.


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There are around eight passive funds focused on PSU banks that have been in the market for approximately six months. The SBI BSE PSU Bank ETF delivered the highest return of 24.19% over this period.

The DSP Nifty PSU Bank ETF and Mirae Asset Nifty PSU Bank ETF returned 23.71% and 23.69%, respectively, while the Nippon India ETF Nifty PSU Bank BeES gave 23.48%. The SBI BSE PSU Bank Index Fund posted the lowest return at 23.44% in the same six-month period.