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

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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.

How to Invest in Equity Mutual Funds

The popularity of investing in Equity Mutual Funds is rising at an exponential rate. Investing and accessing your investments has been made much more convenient by the easy internet terms on the mobiles. 

It takes only a few minutes to start investing in mutual funds.

Presently in India, investing in equity mutual funds is as simple as:

 Step 1: Get registered with WealthBucket. (This is free and the validity is lifetime) 

Step 2: Upload your KYC documents on the portal, to apply for KYC. No need to make tours of various AMCs offices.

Step 3: Invest and watch your money grow on your personal dashboard at the WealthBucket site. Here, you can track, buy, sell and manage all your investments in the highly intuitive app-based interface. In a few clicks only.

 P.S.: You may also discuss your investment goals, risk-taking ability, investable amount, etc. with our team of market analysts and investment experts.

Lump Sum or SIP: Which way to invest?

You can start investing in mutual funds in 2 ways. With SIP (Systematic Income Plan) or LumpSum. If investing a Lump Sum amount, the investor puts the entire amount at one go. If investing via SIP, you need to invest a specific amount of money at regular intervals.

For investing a Lump Sum, timing the market can give good returns if done correctly. Whereas, with SIP, the risks are mitigated because the investment is spread across time. And the cost of purchase and the rupee is averaged out. Further, SIP provides flexibility and affordability of investment and helps in maintaining investment discipline. Since lesser units are bought when the prices are high and more units are bought when the prices are lower. And the fluctuations in the market are avoided.

Besides, not everyone can afford to invest a big amount, every time. Hence, SIPs are the preferred mode of investment. However, both these methods have their advantages and disadvantages.

How to Choose Best Equity Mutual Funds

Performance of the Fund

Most investments are done on the basis of their performance over some time. Additionally, they should be assessed in comparison with their benchmark over 4-5 years. And check a smaller duration and see if the fund has been beating the benchmark or not.

Fund Size (AUM)

Investors should choose the fund whose Asset under Management (AUM) or Fund Size is neither too big nor too small in size. A lower AUM means there have been few investors so far, and it may be risky. While a good AUM implies the plan has already reached, or is near its high point, and has low chances of growth. While there is no perfect amount of the size of the fund, it varies according to the sector and capitalisation. So you will have to look for similar schemes for comparison.

Risk-Return Ratios

Five main indicators help us analyse the investment risks of stocks, bonds, and Mutual Fund Portfolios. These are Alpha Ratio, Beta, Sharpe, R-squared, and the Standard Deviation. These statistical measures predict risk, volatility, and returns. 

Fund Manager

The performance of a Mutual Fund Plan is in the hands or wisdom of the Fund Manager. The person authorised to make vital decisions about buying or selling from the fund’s portfolio. So, the track record of the funds managed by the particular fund manager must be studied, especially during the tough market phases. Going for a fund manager who has been consistent over his career and who has experience of managing a similar kind of funds, should be ideally preferred.

Expenses

While calculating returns from the scheme, it is advisable to check the expenses involved. Especially, the Expense Ratio, which eats into the profits made on the investments. Ideally, industry experts advise choosing schemes that have an expense ratio of up to 1.5% only.

Exit Load

If there is a chance that you may need the money before the end of the investment horizon, you must check Exit Load. This is, generally, charged if you exit within 365 days. However, when you keep invested for more than this period, you will not be charged any Exit Load. Therefore, try to retain the schemes with the least Exit Load requirement, if there is a chance that you may need to withdraw earlier.

Frequently Asked Questions

What are Equity Mutual Funds?
An Equity Mutual Fund invests, primarily, in the equity shares of the companies in different proportions as per their investment mandate. As per SEBI, these have to invest at least 65% of the corpus collected, into the mandated stocks or equities.
How to invest in Equity Funds?
With WealthBucket, the process of investing in Equity Mutual Funds is as simple as 1-2-3. You just need to:
1) Fill-up the form above, with your name, mobile number, and mail-ID. Your account is created
2) Upload your PAN, Aadhaar and Cancelled Cheque pictures. And your KYC is complete. This is required only for the first time investment with WealthBucket.
3) Select the fund most suitable and start investing.
What is the cost of investing in Equity Funds?
Nil. The cost of investing in Equity Mutual Funds is zero. However, most of the Mutual Funds charge some expense ratio. These cover the expenses of the AMC, the fund manager, analyst’s team, etc. No expense ratio is there for passive or Index Funds, as they are not actively managed by the AMC/fund manager.
What are the documents required?
To start investing in Equity Mutual Funds, you just need to upload pictures of your PAN card, ID proof and a cancelled cheque on WealthBucket.
What is the minimum amount required?
You can start an SIP investment in Equity Mutual Funds with as low as Rs. 500. There is no maximum limit for Equity Fund investment.
What is SIP investment?
SIP or Systematic Investment Plan is a mode of investing. It is not an investment plan. Under this, you can invest a specific amount monthly into your selected Equity Mutual Fund plan. It brings a disciplined approach to investing. It helps to create wealth in the long-term (using the power of compounding). And it also reduces the impact of market volatility because the amount is invested monthly.
How do I pay for my SIP instalment?
You will need to add SIP biller, in case you are making payment through Net Banking. This authorizes us to ask your bank to transfer the SIP amount, at intervals set by you. That is all you need to do. The SIP amount will get deducted automatically from your bank and invested into your chosen fund, immediately.
How do I make offline SIP payments?
Please download the E-Mandate Form from our portal, immediately after you have invested in a fund. Complete, sign and upload it on this portal to authorize the bank to transfer this amount to the selected fund.
Do I need to provide E-Mandate for all my investments?
No. With WealthBucket, this is a one-time process. Because we are registered distributors with BSE and SEBI, authorised to deal across India.
SIP or Lump Sum, which is better?
These are 2 different modes of investments. So, in effect, there is no point of comparison between them. SIP, as mentioned in the above answer, is a mode that makes the regular investment over a long period. This is the amount you can spare out of your monthly budget for long-term goals. Whereas, anyone will be able to invest a lump sum only when they have a large amount. Therefore, this cannot be done regularly.
Still, SIP is a much better way to invest than wait to collect a larger amount before investing.
How to measure Risk Appetite?
You can check which Equity Mutual Fund is most suitable for you with the help of the below table on risk profile:
Risk Profile Type of Investor
High Risk Returns would be higher along with a high risk of losing the capital invested.
Moderately High Risk Risk of losing the capital invested is somewhat on the higher side, so are the possibilities of returns.
Moderate Risk For those willing to take moderate risk for moderate returns.
Moderately Low Risk Lower returns with lower risk.
Low Risk Potential to earn returns is quite low. As the risks involved are low too.
Do I need to visit CAMS-KRA office?
Not unless you invest more than Rs. 50,000 in a single AMC, in a single year. Up to this limit, you can simply upload your KYC documents on WealthBucket and keep investing. Once you cross this threshold, you will be required to visit the CAMS office personally.
How are Equity Fund taxed?
The mutual fund investments are taxed according to the investment period. Those investments that are redeemed within 1-year are considered Short-term and those sold back any time after 1-year are Long-term investments.
1. LTCG:
Long Term Capital Gains or LTCG are applicable at the time of redemption of the mutual fund units. If the gain is higher than Rs. 1 lakh, it will be taxed at 10%. LTCG below Rs. 1 lakh is exempt from tax.
2. Short Term Capital Gain:
If the mutual fund units are sold within 1-year of holding, Short Term Capital Gain (STCG) tax will apply. Currently, it is charged at 15%.
How to choose Best Equity Funds?
When you are looking to invest in Mutual Funds, it is advisable to invest with specific, concrete, financial goals in mind.
You should choose the option that is doing well, even if the market is in Bear mode. With this, you will know the maximum damage that can be caused to the fund.
Also, consistency is very important. Even more than the point-to-point returns. Ideally, you should look at the performance at least, past 5-years.
What common mistakes people make while investing?
• Selection based on past performance. Other factors need to be considered before buying into a fund.
• Investing in advice, tips, and hunches received from non-experts.
• Diversifying more than you need. Investing in more than 3-5 schemes will mean losing the benefits of diversification.
• Panicking over market fluctuations. Constant changes, withdrawals or switching over would adversely affect the returns.
• Withdrawing too early. Having a short-term investment horizon would not bring the benefits of investing in Equity Mutual Funds.
What are the benefits of investing in Equity Mutual Funds?
The advantages of investing in an Equity Mutual Fund are:
• Professional Management – managed by a team of expert market analysts and the fund manager, whose job it is that the investment earns good returns.
• Transparency – AMCs are strictly monitored by SEBI. And SEBI requires them to mention clearly the expenses involved, the portfolio contents, etc.
• Diversification – equity funds give the option to invest in a variety of companies and with different mandates.
• Potential of High Returns – mutual funds, have historically, provided better returns than all other traditional investment schemes available in the market.
• Low Costs – costs are spread over the investment duration. Hence, reduce with time.
• Tax benefits – You can choose to invest to save tax. And, at the same time, earn good returns.
• Flexibility – You can easily switch over to another fund by the same AMC, or withdraw and invest in some other house.
• Liquidity – Unlike insurance, PPF, etc that have a lock-in period of over 10-15 years, Equity Mutual Funds are withdrawn within 2-4 days.
• Choice of schemes – There are thousands of plans available, having a different investment mandate.
What is NAV?
NAV or Net Asset Value is the market value of a fund’s assets minus the value of its liabilities. The per-unit NAV is the net asset value of that specific Plan divided by the number of units outstanding on the Valuation Date.
How to monitor the performance of the fund I invested in?
Check for:
• Changes in the management team.
• It merges into another fund.
• Other changes in the management, investment mandate, etc.
• Its performance slips as opposed to similar funds.
• Increase in expense ratio.
• The beta ratio shoots up.
• The ratings of the fund go low.
What is a Switch?
Some Equity Mutual Funds provide the investor with an option to shift the investment from one plan to another within that AMC. A switching fee may be levied. It allows the Investor to change the allocation among different plans to best meet their changed investment needs, risk profiles or changing circumstances during their lifetime.
Is there any minimum lock-in period?
There is no lock-in period for most open-ended funds. But, for tax saving equity funds (ELSS), a minimum lock-in period is there. For now, it is a period of 3-years.
What the different trademark classes?
The Trademark Registry has classified goods and services under 45 classes. The class/classes of the goods/services should be mentioned accurately in an application. The trademark would be registered under those classes only. When doing trademark search you should only be worried if a trademark with a similar name exists in the same class. For example, if you are an IT provider by name of ComSys, you will get your trademark if someone else has registered the same trademark in some other class.
Risk Profile Type of Investor
High Risk Returns would be higher along with a high risk of losing the capital invested.
Moderately High Risk Risk of losing the capital invested is somewhat on the higher side, so are the possibilities of returns.
Moderate Risk For those willing to take moderate risk for moderate returns.
Moderately Low Risk Lower returns with lower risk.
Low Risk Potential to earn returns is quite low. As the risks involved are low too.