Debt mutual funds are a popular investment option in India, especially for conservative investors who are looking for fixed-income instruments with relatively lower risk.
Debt funds primarily invest in fixed-income securities such as bonds, government securities, money market instruments, and corporate debt securities. These funds offer a stable and regular income stream along with capital preservation, making them a popular choice among investors.
In this article, we will discuss the best debt mutual funds in India based on their past performance and other important parameters.
What is a mutual fund?
Mutual funds are a type of investment vehicle that pools money from many investors to purchase a portfolio of stocks, bonds, or other securities. These funds are managed by professional fund managers who use the pooled money to invest in a variety of assets with the aim of generating returns for the investors.
When an investor buys units or shares of a mutual fund, they are effectively buying a small portion of the overall portfolio of assets held by the fund. The value of these units or shares changes based on the performance of the underlying assets held by the fund. If the value of the assets held by the fund increases, the value of the units or shares held by the investor also increases.
Mutual funds offer investors a number of advantages, including:
- Professional Management: Mutual funds are managed by experienced investment professionals who have the knowledge and expertise to make informed investment decisions on behalf of the investors.
- Diversification: By investing in a mutual fund, investors gain exposure to a diversified portfolio of assets, which helps to spread out the risk and reduce the impact of any single investment.
- Liquidity: Mutual funds are generally highly liquid, meaning that investors can easily buy or sell their units or shares on any business day.
- Low Minimum Investment: Many mutual funds have low minimum investment requirements, making them accessible to a wide range of investors.
- Transparency: Mutual funds are required to disclose their holdings and other important information to investors on a regular basis, which provides investors with a high level of transparency.
There are many different types of mutual funds, each with its own investment strategy and risk profile. Some common types of mutual funds include:
- Equity Funds: These funds invest primarily in stocks, with the aim of generating long-term capital appreciation.
- Bond Funds: These funds invest primarily in bonds, with the aim of generating income for investors.
- Balanced Funds: These funds invest in a mix of stocks and bonds, with the aim of generating both capital appreciation and income for investors.
- Index Funds: These funds track a specific market index, such as the S&P 500, and aim to replicate the performance of that index.
- Sector Funds: These funds invest in specific sectors of the economy, such as technology or healthcare.
- International Funds: These funds invest in companies outside of the investor’s home country, with the aim of generating exposure to international markets.
Overall, mutual funds can be a useful tool for investors who are looking to gain exposure to a diversified portfolio of assets, while benefiting from the expertise of professional fund managers. However, like any investment, it is important to carefully consider the risks and benefits of investing in mutual funds and to seek professional advice if necessary.
SBI Magnum Constant Maturity Fund
The SBI Magnum Constant Maturity Fund is an open-ended debt scheme that primarily invests in government securities, corporate bonds, and money market instruments. The fund has consistently delivered good returns over the years and has a 5-year annualized return of around 7.45% (as of January 2023). The fund is suitable for investors looking for long-term investment options and is a good option for those who want to park their money in safe investments.
HDFC Corporate Bond Fund
The HDFC Corporate Bond Fund is an open-ended debt scheme that invests in high-rated corporate bonds, commercial papers, and certificates of deposit. The fund has a 5-year annualized return of around 7.40% (as of January 2023) and is suitable for investors looking for a safe and steady income stream. The fund’s portfolio is well diversified across various sectors, and it has a low credit risk profile.
Axis Banking & PSU Debt Fund
The Axis Banking & PSU Debt Fund is an open-ended debt scheme that invests primarily in debt instruments issued by banks, public sector undertakings (PSUs), and public financial institutions. The fund has a 5-year annualized return of around 7.73% (as of January 2023) and has consistently delivered good returns over the years. The fund is suitable for investors looking for a safe and steady income stream, with relatively lower credit risk.
ICICI Prudential Banking & PSU Debt Fund
The ICICI Prudential Banking & PSU Debt Fund is an open-ended debt scheme that invests primarily in debt instruments issued by banks, public sector undertakings (PSUs), and public financial institutions. The fund has a 5-year annualized return of around 7.41% (as of January 2023) and has consistently delivered good returns over the years. The fund is suitable for investors looking for a safe and steady income stream, with relatively lower credit risk.
Franklin India Corporate Debt Fund
The Franklin India Corporate Debt Fund is an open-ended debt scheme that invests primarily in high-rated corporate bonds and money market instruments. The fund has a 5-year annualized return of around 7.03% (as of January 2023) and has a diversified portfolio across various sectors. The fund is suitable for investors looking for a safe and steady income stream, with relatively lower credit risk.
Nippon India Liquid Fund
The Nippon India Liquid Fund is an open-ended debt scheme that primarily invests in money market instruments, including treasury bills, certificates of deposit, and commercial papers. The fund has a 5-year annualized return of around 6.34% (as of January 2023) and is a good option for investors looking for short-term investment options. The fund’s portfolio has a low credit risk profile, and the fund offers high liquidity.
Aditya Birla Sun Life Short Term Fund
The Aditya Birla Sun Life Short Term Fund is an open-ended debt scheme that primarily invests in high-rated corporate bonds, government securities, and money market instruments. The fund has a 5-year annualized return of around 7.32%
(as of January 2023) and is suitable for investors looking for a short-term investment option with relatively lower risk. The fund has a well-diversified portfolio across various sectors and has a low credit risk profile.
IDFC Corporate Bond Fund
The IDFC Corporate Bond Fund is an open-ended debt scheme that primarily invests in high-rated corporate bonds, commercial papers, and certificates of deposit. The fund has a 5-year annualized return of around 7.43% (as of January 2023) and is suitable for investors looking for a safe and steady income stream. The fund’s portfolio has a low credit risk profile and is well diversified across various sectors.
Kotak Corporate Bond Fund
The Kotak Corporate Bond Fund is an open-ended debt scheme that invests primarily in high-rated corporate bonds, commercial papers, and certificates of deposit. The fund has a 5-year annualized return of around 7.33% (as of January 2023) and is suitable for investors looking for a safe and steady income stream. The fund’s portfolio has a low credit risk profile, and the fund is well diversified across various sectors.
DSP Credit Risk Fund
The DSP Credit Risk Fund is an open-ended debt scheme that invests in debt instruments of lower-rated corporate bonds and money market instruments. The fund has a 5-year annualized return of around 7.28% (as of January 2023) and is suitable for investors looking for higher returns but are willing to take a slightly higher risk. The fund’s portfolio has a relatively higher credit risk profile and is well diversified across various sectors.
In conclusion, debt mutual funds are a good investment option for conservative investors looking for fixed-income instruments with relatively lower risk. However, it is important to select a fund based on your investment goals, risk appetite, and investment horizon. The above-listed funds are some of the best debt mutual funds in India based on their past performance and other important parameters, but investors should always do their own research and seek professional advice before investing in any mutual fund.