Debt Fund: Types , Benefits and Returns

Debt fund

What is a Debt Fund?

Debt fund invest a major portion of their money in Government Securities, Treasury Bills, Corporate Bonds, other money market instruments and debt securities. All of the above-listed securities have a fixed maturity date and interest rate associated, Investor will receive the interest income at the end of the said maturity period. This income is usually unaffected by the market condition and hence the name “Fixed Income”.

As per the latest circular by SEBI, there are 16 different categories of debt mutual funds. This categorization is done based on where debt fund invest its corpus. Debt mutual fund differ vastly as per their category , some debt mutual funds invest in short term securities while other might invest in long term securities.

debt-funds-faq
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Similarly, two debt mutual funds of a different category can have totally different risk profile and might not be suitable for every investor. It is extremely important to understand each category and only to invest in debt mutual funds which are as per your investment goals and risk profile. Going through a random list of top debt mutual funds on internet will most probably cause more harm than any good to an investor starting out their investment journey.

Different categories of Debt Funds

Overnight Funds

One of the safest category of mutual funds,Overnight funds is an open ended debt scheme which invest in securities having maturity of 1 day only. This means that their portfolio is getting updated everyday with new securities. The entire asset holding of overnight fund can be classified as “Cash or Cash equivalent”.

Advantages

  • No interest rate risk since securities matures in one day.
  • Almost zero credit risk.
  • Best for ultra conservative investor to get started in mutual funds investment.
  • Better tax adjusted returns compared to saving accounts

Disadvantage

  • Lower returns compared to other Debt mutual funds categories.

How to Find The Best Overnight Fund

While evaluating overnight funds , two criteria are used: returns and total expense ratio(%). The expense ratio is the amount that is charged by the fund annually for managing the investment portfolio, higher expense ratios reduce the final return to the investor. Only direct mutual funds are considered for comparison since they has low overhead cost compared to regular mutual funds. below is the list of top 5 best direct overnight fund based on YTD returns for investors:

Fund NameYTD ReturnExpense Ratio (%)
DSP Overnight Fund Direct Growth3.18%.10%
PGIM India Overnight Fund Direct Growth3.17%.10%
UTI Overnight Fund Growth- Direct3.05%.06%
Axis Overnight Fund Direct Growth3.05%.07%
ICICI Prudential Overnight Fund Direct Growth2.99%.11%
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Frequently Asked Question About Overnight Funds

Q. Is it safe to invest in Overnight Fund?

Yes , Overnight fund are one of the safest type of mutual fund investments. Short duration of debt and good quality of companies makes them near risk free and perfect investment option for ultra-conservative investors.

Q. What the is minimum investment amount for Overnight Funds?

Minimum investment amount differ from fund house to fund house , however you can mostly start with Rs. 1000.

Q. Are overnight funds and liquid funds are same?

No, Liquid funds invest in securities maturing up-to 91 days while overnight fund invest in securities maturing in 1 day . Liquid funds offer better returns compared to overnight funds , however are riskier compared to overnight funds.

Liquid Funds

Most talked about category of debt funds, an open-ended liquid scheme which invests in debt and money-market securities having a maturity of up to 91 days only. Liquid funds tend to offer better tax-adjusted returns compared to saving accounts and are good for parking a certain percentage of your emergency fund corpus.

As per SEBI norms, Liquid funds are not allowed to invest in risky assets and can only invest in listed commercial papers. They can have maximum exposure to 20% to a given sector, making it suitable for the short term investment. Further, liquid funds should hold at least 20% of their assets in liquid products (cash and cash equivalents such as money market securities.

Advantages

  • Low risk.
  • Best for conservative investor to get started in mutual funds investment.
  • Better tax adjusted returns compared to short term fixed deposits.
  • Can be used for keeping contingency fund.

Disadvantage

  • Lower returns compared to other Debt mutual funds categories.
  • Not immune to credit risk, some might invest in lower grade securities to boost the return.

How to Find the Best Liquid Funds

While evaluating liquid mutual fund , four criteria are used: returns ,total expense ratio(%),fund size and diversification. investor should compare the liquid funds on the four parameters listed above. Below is the list of top 5 best direct Liquid fund with proven track record and who has consistently beaten category average returns in last 5 years:

Fund NameYTD ReturnExpense Ratio (%)
ICICI Prudential Liquid Fund Direct Plan Growth4.00%.20%
Nippon India Liquid Fund Direct Plan Growth Plan3.98%.20%
Axis Liquid Fund Direct Plan Growth Option3.96%.18%
PGIM India Insta Cash Fund Direct Plan Growth3.94%.14%
UTI- Liquid Cash Plan – Direct Plan – Growth Option3.90%.17%
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Frequently Asked Questions About Liquid Funds

Q. Is it safe to invest in liquid fund?

Yes, liquid funds are one of the safest types of mutual fund investments. The short duration of debt and good quality of companies makes them near risk-free and the perfect investment option for ultra-conservative investors.

Q. What the is minimum investment amount for liquid funds?

Minimum investment amounts differ from fund house to fund house, however you can mostly start with Rs. 1000.

Q. Can we do SIP in liquid fund?

Yes, you can choose at what frequency you want to invest and money will be deducted from your account.

Ultra Short Duration Funds

Ultra short duration debt funds invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 months -6 months. Macaulay duration is the weighted average term to maturity of the scheme investing in multiple securities of different maturity periods. It is best suited to investors with an investment horizon of around six months and a lower risk preference.

Advantages

  • Moderately low risk.
  • Better tax-adjusted returns compared to short term fixed deposits.
  • can be used to meet a certain financial goal in six months.

Disadvantage

  • Lower returns compared to other Debt mutual fund categories.
  • Not immune to credit risk, some might invest in lower grade securities to boost the return.

How to Find the Best Ultra Short Duration Funds

While evaluating ultra short duration debt mutual funds, four criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the ultra short duration funds on the five parameters listed above. Below is the list of top 5 best direct ultra short duration fund with a proven track record and who has consistently beaten category average returns in last 5 years:

Fund NameYTD ReturnExpense Ratio (%)
ICICI Prudential Ultra Short Term Fund Direct Plan Growth6.55%.39%
Kotak Savings Fund Direct Growth5.80%.33%
PGIM India Ultra Short Term Fund Direct Plan Growth5.63%.30%
SBI Magnum Ultra Short Duration Fund Direct Plan Growth5.51%.31%
L&T Ultra Short Term Fund Direct Plan Growth5.38%.23%
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Frequently Asked Questions About Ultra Short Duration Funds

Q. Is it safe to invest in ultra short duration fund?

Yes, provided you keep check on the credit quality of underlying securities. Sometimes mutual funds start investing in lower grade securities in order to get extra returns. Debt mutual funds investment is to provide stability to the overall portfolio, you should not be comparing debt mutual funds based on the returns alone.

Q. What the is minimum investment amount for ultra short duration funds?

Minimum investment amount differ from fund house to fund house , however you can mostly start with Rs. 1000.

Q. Can we do SIP in ultra short duration funds?

Yes, you can choose at what frequency you want to invest and money will be deducted from your account.

Low Duration Funds

Low duration funds invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months-12 months. This is best for investors looking to fulfill a certain goal in the next 6-12 months. e. g. investing in a low duration fund to buy a phone after a few months instead of getting it on EMI is a better financial decision.

Advantages

  • Moderate risk.
  • Best for risk-averse investors to get started in mutual funds investment.
  • Give slightly higher than FD returns without too much risk.

Disadvantage

  • Not immune to interest risk.
  • Not immune to credit risk, some might invest in lower grade securities to boost the return.

How to Find the Best Low Duration Funds

While evaluating low duration debt mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the low duration funds on the five parameters listed above. Below is the list of top 5 best direct low duration fund with a proven track record and who has consistently beaten category average returns in last 5 years:

Fund NameYTD ReturnExpense Ratio (%)
Kotak Low Duration Fund- Direct Plan-Growth Option8.04%.36%
ICICI Prudential Savings Fund Direct Plan-Growth7.53%.44%
BNP Paribas Low Duration Fund Direct Plan-Growth Option7.53%.21%
Nippon India Low Duration Fund Direct Plan-Growth Plan7.29%.35%
Axis Treasury Advantage Fund Direct Plan-Growth Option7.06%.30%
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Frequently Asked Questions About Low Duration Funds

Q. What the is minimum investment amount for low duration duration funds?

Minimum investment amount differ from fund house to fund house , however you can mostly start with Rs. 1000.

Q. Can we do SIP in low duration duration funds?

Yes, you can choose at what frequency you want to invest and money will be deducted from your account.

Q. What are the risk associated with low duration funds?

Low duration funds are not free from interest rate risk, credit risk or liquidity risk. Invest only after understanding the debt mutual fund category and keep reviewing the fund portfolio to understand the credit quality of underlying securities to asses the risk.

Money Market Funds

Money market funds invest in Money Market instruments such that the Macaulay duration of the portfolio is up to 1 year while maintaining a high level of liquidity. This is best for investors looking to fulfill a certain goal in the next 1 year and get sightly better returns compared to a fixed deposit scheme of a similar duration.

Advantages

  • Moderately low risk.
  • Best for conservative investors to get started in mutual funds investment.
  • Give slightly higher than FD returns without too much risk.

Disadvantage

  • Not immune to interest risk.
  • slightly immune to credit risk or liquidity.

money market funds

How to Find Best Money Market Funds

While evaluating money market mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the money market debt mutual funds on the five parameters listed above. Below is the list of top 5 best direct money market debt mutual with a proven track record and who has consistently beaten category average returns in last 5 years:

Fund NameYTD ReturnExpense Ratio (%)
ICICI Prudential Money Market Fund Direct Plan Growth5.87%.21%
SBI Savings Fund Direct Plan Growth5.76%.23%
Invesco India Money Market Fund Direct Plan Growth5.65%.20%
UTI Money Market Fund – Direct Plan – Growth Option5.64%.17%
Nippon India Money Market Fund Direct Plan Growth Option5.56%.15%
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Frequently Asked Questions About Money Market Funds

Q. What the is minimum investment amount for money market funds?

Minimum investment amount differ from fund house to fund house , however you can mostly start with Rs. 1000.

Q. Can we do SIP in low duration duration funds?

Yes, you can choose at what frequency you want to invest and money will be deducted from your account.

Q. Are money market funds safe?

All type of mutual funds investment are subjected to market risk. money market funds are not the exceptions, however your chances of losing money are very less since money market securities have low risk of default and they invest money for short period( up to 1 year).

Short Duration Funds

Short duration fund invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 1 year –3 years. These type of funds are suitable for investor looking to accomplish short term goals like buying a car or planning for foreign vacation etc etc.

Advantages

  • Moderately risk.
  • Best for investors to get started in mutual funds investment and doesn’t mind taking interest rate risk for higher returns.
  • Give higher than FD returns.

Disadvantage

  • Not immune to interest risk.
  • Not immune to credit risk or liquidity risk.

How to Find Best Short Duration Funds

While evaluating short duration funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the short duration debt mutual funds on the five parameters listed above. Below is the list of top 5 best direct short duration fund with a proven track record and who has consistently beaten category average returns in last 5 years:

Fund NameYTD ReturnExpense Ratio (%)
ICICI Prudential Short Term Fund Direct Plan Growth Option10.39%.40%
BNP Paribas Short Term Fund Direct Plan Growth Option10.12%.35%
Axis Short Term Fund Direct Plan Growth Option9.99%.30%
Kotak Bond Short Term Plan – Growth – Direct9.97%.34%
Invesco India Short Term Fund – Direct Plan – Growth9.54%.40%
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Frequently Asked Questions About Short Duration Funds

Q. Who should invest in short term fund?

Investors willing to park their money for 1-3 years and ready accept some credit risk can invest in short duration debt mutual funds to generate better returns compared to fixed deposit.

Q. For how many years my money will be locked-in?

Unlike fixed deposit, debt mutual funds do not have any lock-in period,however they do charge exit load if you withdraw before 7 day period. This period might differ from fund house to fund house

Q. Are short duration funds safe?

All type of mutual funds investment are subjected to market risk. short duration debt mutual funds are not the exceptions, however your chances of losing money are very less if you invest in short duration funds investing in good credit quality securities.

Medium Duration Funds

An open-ended Medium duration debt scheme invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 year –4 years. These type of funds are suitable for investor looking to accomplish short to medium term goals like buying a car or planning for vacation etc etc.

Advantages

  • Moderately risk.
  • Give higher tax adjusted returns than Fixed deposit.

Disadvantage

  • Not immune to interest risk.
  • Not immune to credit risk or liquidity risk.

How to Find Best Medium Duration Funds

While evaluating medium duration debt mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the medium duration funds on the five parameters listed above. Below is the list of top 5 best direct medium duration debt mutual with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
 Axis Strategic Bond Fund Direct Plan Growth Option9.94%.35%
SBI Magnum Medium Duration Fund11.52%.73%
ICICI Prudential Medium Term Bond Fund
10.08%.97%
Kotak Medium Term Fund8.36%.74%
L&T Resurgent India Bond Fund8.80%.60%
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Frequently Asked Questions About Medium Duration Funds

Q. Who should invest in medium term fund?

Investors willing to park their money for 3-4 years and ready accept some credit risk can invest in medium duration debt mutual funds to generate better returns compared to fixed deposit.

Q. For how many years my money will be locked-in?

Unlike fixed deposit, debt mutual funds do not have any lock-in period,however they do charge exit load if you withdraw before 7 day period. This period might differ from fund house to fund house.

Q. Are medium duration funds safe?

All type of mutual funds investment are subjected to market risk. short duration debt mutual funds are not the exceptions, however your chances of losing money are very less if you invest in short duration funds investing in good credit quality securities.

Medium to Long Duration Funds

An open-ended Medium to long duration debt scheme invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 3 year –7 years. average investor should be aware of the higher risk and should carefully decide when it comes to medium to long term duration funds.

Advantages

  • Moderately risk.
  • Give higher tax adjusted returns than Fixed deposit.

Disadvantage

  • High interest rate risk.
  • Not immune to credit risk or liquidity risk.

How to Find Best Medium to Long Duration Funds

While evaluating medium to long duration debt mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the medium to long duration funds on the five parameters listed above. Below is the list of top best direct medium to long duration debt mutual with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
 ICICI Prudential Bond Fund – Direct Plan – Growth11.34%..53%
SBI Magnum Income Fund – Direct Plan – Growth11.39%.85%
Aditya Birla Sun Life Income Fund Direct Plan Growth
12.47%.42%
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Long Duration Funds

An open-ended Long duration debt scheme invest in Debt & Money Market instruments such that the Macaulay duration of the portfolio is higher than 7 years. average investor should be aware of the higher risk and should carefully decide when it comes to long term duration funds. Investors who are aware of the economic cycle/interest rate should only play with long duration debt fund .

Advantages

  • Moderately risk.
  • Give higher tax adjusted returns than Fixed deposit.

Disadvantage

  • Very high interest rate risk.
  • Not immune to credit risk or liquidity risk.

How to Find Best Long Duration Funds

While evaluating medium to long duration debt mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the medium to long duration funds on the five parameters listed above. Below is the list of top best direct medium to long duration debt mutual with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
Nippon India Nivesh Lakshya Fund – Direct Plan – Growth11.23%.22%

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Dynamic Bond Funds

An open ended dynamic debt scheme investing across duration securities. This means that fund manger decides the lending duration as per the interest rate movement and tries to benefits from it buy decreasing /increasing the lending duration of the securities. These are typically best for investors who doesn’t want to decide in what direction interest rate will move and leave the decision making to the fund manager.

Advantages

  • Moderately risk.
  • Give higher tax adjusted returns than Fixed deposit.

Disadvantage

  • returns depends upon the fund mangers ability to correctly predict the direction of interest rate movement.
  • Not immune to credit risk or liquidity risk.

dynamic bond fund
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How to Find Best Dynamic Bonds Funds

While evaluating dynamic bonds mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the dynamic bond funds on the five parameters listed above. Below is the list of top best dynamic bonds mutual fund with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
Mirae Asset Dynamic Bond Direct Growth10.30%.49%
IDBI Dynamic Bond Fund Direct Growth9.49%.76%
HSBC Flexi Debt Mutual Fund Growth Direct Plan
8.97%.95%
ICICI Prudential All Seasons Bond Fund – Direct Plan – Growth11.33%.80%
Kotak Dynamic Bond Fund Direct Growth11.31%.45%
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Frequently Asked Questions About Dynamic Bonds Funds

Q. Who should invest in dynamic bond fund?

Investors willing to park their money for 3-5 years and don’t want to take a call on interest rate movement can invest in dynamic bonds fund

Q. For how many years my money will be locked-in?

Unlike fixed deposit, debt mutual fund do not have any lock-in period,however they do charge exit load if you withdraw before exit load period. This period might differ from fund house to fund house.

Q. can I lose money in bond fund?

Yes, All mutual fund investments are subjected to market risk. If the fund manager decides to sell large number of securities in rising interest rate environment.

Corporate Bond Fund

An open ended debt scheme predominantly investing in highest rated corporate bonds. As per SEBI:- minimum 80% of total assets should be invested in highest rated corporate bonds.High rating is given only to companies that are financially strong and have a high probability of paying lenders on time.

These are typically good for investors ready to park their money for 2-3 years and achieve near term financial goal like planning to buy a car or a vacation.

Advantages

  • Moderately risk.
  • Give higher tax adjusted returns than Fixed deposit.

Disadvantage

  • Not immune to credit risk or interest rate risk.
  • some funds may invest with lower rated securities to boost the returns.

How to Find Best Corporate Bonds Funds

While evaluating corporate bonds mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the corporate bond funds on the five parameters listed above. Below is the list of top best corporate bonds mutual fund with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
Aditya Birla Sun Life Corporate Bond Fund Direct Plan Growth11.14%.29%
Sundaram Corporate Bond Fund – Direct Plan – Growth Option10.40%.28%
ICICI Prudential Corporate Bond Fund Direct Plan Growth
9.99%.28%
PGIM India Premier Bond Fund Direct Plan Growth9.85%.15%
Canara Robeco Corporate Bond Fund Direct Growth9.62%.35%
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Frequently Asked Questions About Corporate Bond Funds

Q. Who should invest in corporate bond fund?

Investors willing to park their money for 3-5 years and are looking to get higher returns compared to fixed deposits.

Q. For how many years my money will be locked-in?

Unlike fixed deposit, debt mutual fund do not have any lock-in period,however they do charge exit load if you withdraw before exit load period. This period might differ from fund house to fund house.

Q. can I lose money in corporate bond fund?

Yes, All mutual fund investments are subjected to market risk. If the fund manager decides to invest in lower rated securities to boost the return and the underlying company doesn’t return the money to lenders.

Banking and PSU Funds

An open ended debt scheme predominantly investing in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions. as per SEBI:- minimum 80% of total asset should be invested in Debt instruments of banks, Public Sector Undertakings, Public Financial Institutions. Since most of the borrowers are backed by government or big banks, there are very less chances of defaults.

Advantages

  • Moderately low risk.
  • Give higher tax adjusted returns than Fixed deposit.
  • Good for conservative investors starting out mutual fund investment in debt mutual fund.

Disadvantage

  • Not immune to interest rate risk.
  • some funds may invest remaining 20% with lower rated securities to boost the returns.

How to Find Best Banking and PSU Funds

While evaluating banking and PSU debt mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the banking and PSU funds on the five parameters listed above. Below is the list of top best banking and PSU debt mutual fund with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
Nippon India Banking & PSU Debt Mutual Fund Direct Growth10.72%.31%
IDFC Banking & PSU Debt Mutual Fund Direct Growth10.54%.30%
Aditya Birla Sun Life Banking & PSU Debt Mutual Fund Direct Plan Growth
10.40%.35%
DSP Banking & PSU Debt Mutual Fund Direct Growth10.36%.32%
SBI Banking and PSU Fund Direct Plan Growth10.09%.34%
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Frequently Asked Questions About Banking and PSU Funds

Q. Who should invest in banking and PSU debt mutual fund?

conservative Investors willing to park their money for 3-5 years and are looking to get higher returns compared to fixed deposits.

Q. For how many years my money will be locked-in?

Unlike fixed deposit, debt mutual fund do not have any lock-in period,however they do charge exit load if you withdraw before exit load period. This period might differ from fund house to fund house.

Q. can I lose money in banking and PSU fund?

Yes, All mutual fund investments are subjected to market risk. If the fund manager decides to invest the 20% asset in lower rated securities to boost the return and the underlying company doesn’t return the money to lenders.

Credit Risk Funds

An open ended debt scheme investing in below highest rated corporate bonds. As per SEBI: minimum 65% of total asset should be invested in below highest rated corporate bonds.

These are the funds where most of beginner debt fund investors invest their money due to double digits return but they forget about the risk involved . The credit quality of the securities are low which makes these funds very high risk for average investor.

Advantages

  • Moderately high risk.
  • Give higher tax adjusted returns than Fixed deposit.

Disadvantage

  • Not immune to interest rate risk.
  • very high credit risk as invest in lower rated securities.
  • High probability of incurring losses.

credit-risk-fund
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How to Find Best Credit Risk Funds

While evaluating credit risk debt mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the credit risk funds on the five parameters listed above. Below is the list of top best credit risk mutual fund with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
SBI Credit Risk Fund Direct Plan Growth9.43%.93%
Invesco India Credit Risk Fund Direct Growth8.69%.36%
Axis Credit Risk Fund Direct Growth
8.26%.56%
HDFC Credit Risk Debt Mutual Fund9.96%1.13%
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Frequently Asked Questions About Credit Risk Funds

Q. Who should invest in credit risk debt mutual fund?

due to risky nature of underlying securities,not suitable for risk-averse investors even thought credit risk fund are debt mutual fund.

Q. For how many years my money will be locked-in?

Unlike fixed deposit, debt mutual funds do not have any lock-in period,however they do charge exit load if you withdraw before exit load period. This period might differ from fund house to fund house.

Q. can I lose money in credit risk fund?

Yes, All mutual fund investments are subjected to market risk. High probability of loss of capital due to below par rating of securities.

Gilt Funds

An open ended debt scheme investing in government securities across maturity. As per SEBI:-minimum 80% of total asset should be invested in government securities of different maturities. Due to type of securities there is no credit risk with this type of funds,however they do have interest rate risk.

Advantages

  • low risk.
  • Give higher tax adjusted returns than Fixed deposit.
  • No credit risk since 80% of assets are invested in government backed securities.
  • Good for risk averse investors starting mutual fund investment journey.

Disadvantage

  • Not immune to interest rate risk.

How to Find Best Gilt Funds

While evaluating gilt mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality of the underlying securities. an investor should compare the gilt funds on the five parameters listed above. Below is the list of top best gilt mutual fund with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
IDFC GSF Investment Fund12.75%.61%
Nippon India Gilt Securities Fund10.90%.62%
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10 Years Gilt Funds

An open ended debt scheme investing in government securities having a constant maturity of 10 year duration.As per SEBI:-minimum 80% of total asset should be invested in government securities so that Macaulay duration is 10 years.

These funds are good for long term debt allocation in portfolio without worrying about the risk of interest payment,Investors should be expecting better than fixed deposit returns which are tax efficient as well

Advantages

  • low risk.
  • Give higher tax adjusted returns than Fixed deposit.
  • No credit risk since 80% of assets are invested in government backed securities.
  • Good for long term debt allocation in portfolio.

Disadvantage

  • Not immune to interest rate risk in short term.

How to Find Best 10 Year Gilt Funds

While evaluating gilt mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification . An investor should compare the 10 year gilt funds on the four parameters listed above. Below is the list of top best 10 year gilt mutual fund with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
IDFC Government Securities Fund Constant Maturity Plan11.94%.48%
ICICI Prudential Constant Maturity Gilt Fund – Direct Plan – Growth12.59%.23%
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Frequently Asked Questions About Gilt Funds

Q. Who should invest in gilt debt mutual fund?

Suitable for investors looking to get stable returns without taking much risk.

Q. For how many years my money will be locked-in?

Yes, Gilt funds are used for long term investing purpose, check out the individual fund details for lock-in period.

Q. can I lose money in gilt fund?

Yes, All mutual fund investments are subjected to market risk, however the probability of losses are very less since they invest in gov. backed securities.

Floater Funds

An open ended debt scheme predominantly investing in floating rate instruments. As per SEBI: minimum 65% of total asset should be invested in floating rate instruments. Most of the funds of this category lend for short period to keep the risk low. Investors are better off going with low, ultra short duration funds for better predictability of returns.

Advantages

  • low risk.
  • Give higher tax adjusted returns than Fixed deposit.

Disadvantage

  • Not immune to interest rate risk, credit risk .

How to Find Best Floater Funds

While evaluating Floating rate mutual funds, five criteria are used: returns, total expense ratio(%), fund size and diversification and credit quality. An investor should compare the floating rate funds on the five parameters listed above. Below is the list of top floating rate with a proven track record and who has consistently beaten category average returns in last few years:

Fund NameYTD ReturnExpense Ratio (%)
Aditya Birla Sun Life Floating Rate Fund8.03%.22%
Franklin India Floating Rate Fund5.24%.23%
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1. List of funds given in this article is not a buy or sale recommendation. 
2. Past performance may not continue in the future.
3. These are just list of top performing fund in each category at the time of writing this article on 11/18/2020.
4. Only direct mutual fund with growth option ,low expense ratio and big AUM are considered while preparing the list.
Reference:-
https://www.sebi.gov.in/legal/circulars/oct-2017/categorization-and-rationalization-of-mutual-fund-schemes_36199.html
https://www.morningstar.in/tools/mutual-fund-screener.aspx
https://www.etmoney.com/mutual-funds/debt
https://economictimes.indiatimes.com/mf/analysis/what-are-debt-mutual-funds/articleshow/76403975.cms
https://mywaywealth.com/new-debt-mutual-fund-classification-by-sebi/

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