Your Questions Answered: What is the difference between mutual funds tracking Nifty Bank Index and Nifty PSU Bank Index?

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Q. I am a real estate broker, running my small business in Ghaziabad. My wife is a housewife. I have been investing in large cap stocks for the past 7 years. I now intend to diversify my portfolio and invest in index funds tracking the banking sector. I am currently confused between mutual funds tracking the Nifty Bank Index and the Nifty PSU Bank Index. Can you please elaborate?

Ramdheer Rathore, Ghaziabad, Uttar Pradesh

Investing in mutual funds that track specific indices is a popular strategy for many investors, offering a way to gain exposure to particular sectors of the market. In India, two notable indices that mutual funds often track are the Nifty Bank Index and the Nifty PSU Bank Index. Understanding the differences between mutual funds tracking these indices can help investors make informed decisions.

The Nifty Bank Index represents the most liquid and large capitalised Indian banking stocks. It provides investors with a benchmark that captures the capital market performance of Indian bank stocks. Mutual funds tracking the Nifty Bank Index aim to invest in the same stocks that comprise the index, in the same proportions, thereby replicating the index's performance before expenses.

Also Read: Nifty PSU Bank plunges 6% in a week, six stocks including PNB, Canara Banktumble by over 9%; what's causing the fall?

The Nifty Bank Index, a significant barometer of the Indian banking sector's performance, is composed of the most liquid and large capitalised Indian banking stocks. It provides investors and market participants with a benchmark to capture the capital market performance of Indian banks. But what makes a bank eligible for inclusion in this prestigious index? 

Let's delve into the detailed eligibility