Debt Mutual Funds
- Invest Safely with Money Market and Government Bonds
- Invest with low amounts
- One-Time Investment or SIPs
- Well Researched Portfolios and High Return Funds
TOP DEBT MUTUAL FUNDS IN INDIA
| Name of the Fund | 3-Year returns | 5-Year Returns |
|---|---|---|
| Reliance Low Duration | 7.44% | 7.99% |
| Aditya BSL Savings Fund | 7.96% | 8.50% |
| UTI Treasury Advantage Instiutional Growth | 7.70% | 8.25% |
| L&T Low Duration Fund Growth | 9.38% | 8.78% |
| DSP Credit Risk Fund Regular Growth | 6.18% | 7.81% |
| Aditya Birla Sun Life Medium Term Plan | 7.69% | 8.97% |
| UTI Short Term Income Fund Instiutional Growth | 7.30% | 8.21% |
What is a Debt Fund?
A debt fund is essentially like giving a loan to the issuing entity . In this kind of fund, the investment is done in a a fixed interest generation of income kind of security for example corporate bonds, government securities, treasury bills, commercial paper and other market aveneues like money market. The main motive behind investing in the debt funds is in order to earn interest income , as well as, capital appreciation. The issuer of these funds is in charge of deciding the rate of interest , as well as, the maturity period of said funds. Owing to this, these funds are also termed as ‘fixed-income’ securities because they assure at the very least a stable, safe and fixed source of income upon investment.
How Debt Funds Work?
The Debt Fund investment portfolio is composed of different securities on the basis of their credit ratings. The credit rating of security essentially is an indicator of whether or not the issuer of the fund will default in disbursing their promised returns. Debt managers assure that the investments are made in the highest-credit rating financial instruments. Higher credit rating essentially signifies that you will receive the interest on a debt security, as well as, the principal amount upon maturity.
Debt Funds having high credit-ratings will definately be less volatile in contrast to lowly rated securities. In addition to this, the maturity is also dependent upon the stratergy the fund manager chooses to deploy in conjuction with the interest rate regime in the economy. Interest rate regime which is falling gives encouragement top the manager to invest in the long-term securities. Contrarily, a high interest rate is motivation for investing in short-term securities.
Should I Invest in Debt Funds?
Ideally, debt fund investors are slightly conservative in their investment approach and who are apprehensive to get exposed to the equity market. These funds are good for investors who want wealth creation and wealth growth but in a very safe and less volatile manner. In addition to this, these debt instruments might be suitable for individuals who are concerned about their regular income as well.In this kind of financial instrument, investors are usually invested for a short-medium time horizon.
Essentially, if you want to invstment in a low-risk type financial institution which gurantees you a certain amount of fixed returns and regular income, you should go for these funds. The returns of these funds always fall in a predictable range. If your investment horizon lies in betweeen 3 months to 5 years and you wanted assured regular income, you should invest in debt funds. These funds offer better returns than 5-Year bank Fixed Deposit.
Types of Debt Funds
There are a wide-variety of debt mutual funds suitable to the needs of multiple investors . The basis on which the debt mutual funds differ from each other is based upon the maturity period of the financial instruments invested in . In acordance with the same, here are the difeferent type of debt mutual funds you can invest in:
Dynamic Bonds
Dynamic essentially means ever-changing and these dynamic mutual funds are essentially the kind of funds whose portfolio is being constantly being changed by the fund manager. The fund manager obviously makes the changes to the portfolio keeping in mind the interest rate regime. The dynamic bond mutual funds have a very unpredictable maturity period as these funds take interest rate calls and invest in instruments of both long and short maturities.
Income Funds
These kinds of debt mutual funds can also take a call on the interest rates and make investments in debt securities with varying maturities , however income funds have been generally associated with investment in long maturity time securities. This essentially ensures that the income funds are more stable in comparison to the dynamic bond funds. Average maturity of these funds ranges from a time period of 5 to 6 years.
Short Term and Ultra Short Term Debt Funds
Basically, these are the debt mutual funds with investments in shorter maturities typically ranging from 1 to 3 years. These funds are perfect for conservative investors since the return rates of this fund are not affected by the movements in the interest rates.
Liquid Funds
Liquid fuds are funds in which the investment portfolio consists of debt instruments with a maximum maturity if 91 days. Due to this, in a sense, it can be said that liquid funds are basically a risk-free investment option. There have been extremely rare cases of negative returns from liquid funds. These funds have been proven to be better alternatives to a savings bank account since the liquidity that they provide is similar while yielding higher returns. Special debt cards are issued by many mutual fund companies in order to facilitate instant redemption of funds.
Gilt Funds
Gilt funds are those financial products whoe investment portfolio only consists of government securities which are high credit score securities with very low credit risks. This is basically because the government rarely defaults in the repayment of their loans and debts. Due to this, gilt funds make for ideal investment oppurtunities for investors looking out for fixed-income risk-free schemes.
Credit oppurtunities Fund
These types of debt mutual funds are relatively newer as compared to their counterparts. Credit oppurtunities mutual funds are different from others in the sense that these funds’ investment portfolio is not based upon the maturities of the particular debt instruments. The aim of these types of funds is to earn higher returns by taking a call on credit risks or by holding low-rated bonds that come with higher interest rates. These are among the riskier debt funds.
Fixed Maturity Plans
In the very basic sense, Fixed Maturity Plans are closed-ended debt funds. The portfolio of these kinds of funds comprises of corporate bonds and government securities. The FMPs have a fixed horizon of investment in which the money invested will be locked in. The horizon could range from a few months to many years. The investment in these funds however, can only be made in the Initial Offer Period . In many ways these mutual funds resemble a fixed deposit . However, it is a financial institution which can help deliver superior, tax efficient returns however, there is no assured gurantee of obtaining returns.
Evaluating Debt Mutual Funds
There are a lot of factors that need to be addressed in order to properly and accurately evaluate a debt mutual fund before investing in them. We list down some of the factors you should look at to select the fund which meets your financial goals.
Fund Returns
In order to properly evaluate a particular fund before choosing to invest should be the returns of the funds . Ou should look at the consistenet returns of the fund over a long time period say 3 year returns or 5 year returns.One of the criteria for picking a particular fund over the others should be that the fund outperforms the bench mark indices , as well as, significantly better performance than the peer funds.
Fund History
The funds you are about to invest in should be from a reputed funds house and have a strong history of consistent performance in the investment domain. A consistent track record of over 5-10 years of returns matching your financial goals should be one of the qualities that your selected fund qualifies for.
Investment Horizon
Investment horizon is basically the time period for which you plan to stay invested in the particular fund. If you plan to stay invested for a short time-period of 3 months up to year liquid funds are ideal. In contrast to this, if your plan is to stay invested for a time period of 2-3 years, an ideal fund would be the short-term bond fund. An intermediate horizon might call for taking up some of the high-performing dynamic bond funds. In the case of debt mutual funds, longer the investment horizon, better the returns will turn out to be.
Expense Ratio
Essentially, the expense ratio is an indicator of how much of the invested amount is being utilized to manage the expenses of the fund. Lower expense ration is indicative of higher take-home returns hence, chooosing a fund with a low expense ratio will help enable you with investment in a fund with a superior performance.
Financial Ratio
Financial ratios of a fund for example standard deviation, Sharpee Ratio, Alpha and Beta can be used to analyze a fund.Funds with higher standard deviation, and beta are considered to riskier investment options as compared to those with lower bet a and lower standard deviation. In addition to this, you should go for funds having a higher sharpe ratio meaning higher returns are attained on every additional risk unit.
Financial Goals
Debt funds can be used to supplement the income from salary by acting as an alternate source of income. For the purpouses of liquidity, some portion of the earnings can be invested in debt funds. The people who are willing to setup a retirement fund and recieve pension should consider investing bulk of their retirement savings into debt mutual funds.