Characteristics of Debt Mutual Funds
  • Short to long-term money parking
  • Provide stable returns
  • Involve low risk
  • Backed by top AMCs
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Top funds 3Y Return 5Y Return
ICICI Prudential Debt Management Fund (G) 7.16% 8.49% Invest
Franklin India Low Duration Fund (G) 3.72% 6.05% Invest
Kotak Credit Risk Fund (G) 6.9% 7.95% Invest
Aditya Birla Sun Life Medium Term Plan (G) 2.36% 5.14% Invest
Franklin India Short Term Income Plan (G) 4.15% 5.9% Invest
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Oct 05, 2018 13 min read

Best Debt Funds to Invest in 2018

Read this blog to know the best debt funds to invest in 2018.

Although debt funds involve low risk, the returns that they generate are worth investing in them. The investment is mainly done in the fixed income securities that help one earn reasonable returns on the amount invested. It can be said that these funds are much better options for investment in comparison to the other short-term traditional investment methods. Let’s read some more about what these funds are and the top schemes to invest in.

What Are Debt Funds?

Debt funds are those funds or mutual fund schemes that mainly invest in the debt securities, bonds, and money market instruments that yield fixed income. According to the recent categorization and rationalization guidelines by SEBI, these funds are divided into 16 categories. These sub categories are Overnight Fund, Liquid Fund, Ultra Short Duration Fund, Low Duration Fund, Money Market Fund, Short Duration Fund, Medium Duration Fund, Medium to Long Duration Fund, Long Duration Fund, Dynamic Bond, Corporate Bond Fund, Credit Risk Fund, Banking and PSU Fund, Gilt Fund, Gilt Fund with 10 year constant duration, and Floater Fund.

Why Should You Add Debt Mutual Funds to Your Portfolio?

There are some reasons behind every scheme which is added to an investor’s portfolio. The ones that support investment in debt funds are as follows:

  1. High Liquidity
    Debt funds are known for the liquidity that they provide, i.e., investors are free to withdraw the money whenever they want owing to some nominal conditions that come in the form of exit load. In some schemes like the liquid funds, there is no exit load chargeable.
  2. Tax Efficient
    These funds are a better investment option in comparison to the traditional ones such as FD account with bank. The reason being, the tax deducted under these plans for a long-term is LTCG which gets the indexation benefit compared to the tax charged on interest in FD which is calculated according to the normal tax slab.
  3. Low to Moderate Risk
    The risk involved in such schemes is low to moderate which means that conservative investors may invest in these type of funds. All you need to do is select the right scheme after checking the risk that it involves.
  4. Reasonable Returns
    These schemes are known for providing reasonable returns as the investment is diversified across debt securities and money-market instruments and is updated from time to time.
  5. Less Fluctuations
    As under these funds, the investment is mainly done in the fixed income instruments, it is less prone to fluctuations in the rate of returns.
  6. Short to Long Term Investments
    There are a number of mutual fund schemes in which one can invest according to one’s investment perspective. These debt schemes are of short to long-term tenure.


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Top Debt Funds to Invest in India

Franklin India Short Term Income Plan (G)

The investment objective of this fund by Franklin Templeton Mutual Fund is to generate high interest income on the investments made in short-term corporate bonds. It mainly invests in the fixed income securities to provide stable returns to the investors.

Basic Information
ParametersFranklin India Short Term Income Plan
Category Debt: Short Duration
Benchmark CRISIL Short-Term Bond
Launch Date 1/31/2002
Asset Size Rs. 11,338 crore (As on Aug 31, 2018)
Fund Managers Kunal Agrawal & Santosh Kamath
Expense Ratio 1.57%(As on August 31, 2018)
Minimum Lumpsum Rs 5,000
Exit Load For units in excess of 10% of the investment for redemption within 365 days, 0.5% will be charged
Return AnalysisTrailing Returns (As on October 01st, 2018)
Scheme NameYTDLast 3 YearsLast 5 Years
CCIL T Bill Liquidity Weight 2.91% 4.24% 4.87%
Category 3.69% 6.84% 7.82%
Franklin India Short Term Income Plan 5.03% 7.95% 9.14%
Risk Analysis
Scheme NameSDBetaSharpe
CCIL T Bill Liquidity Weight 0.24 - -9.32
Category 1.43 3.5 0.19
Franklin India Short Term Income Plan 1.71 2.43 0.73
As on September 30th, 2018

Who Should Invest?

Franklin India Short Term Income Plan is for investors who are ready to bear moderate risk on the principal amount invested. Investors looking for medium-term money parking may invest in this fund to earn stable returns.

Aditya Birla Sun Life Medium Term Plan (G)

This fund by Aditya Birla Sun Life Mutual Fund is an open-ended debt scheme that invests in the instruments for a medium term. The maturity period of Aditya Birla Sun Life Medium Term Plan is usually 3 to 4 years. It mainly focuses on generating regular income along with capital appreciation by investing mainly in debt instruments.

Basic Information
ParametersAditya Birla Sun Life Medium Term Plan
Category Debt: Medium Duration
Benchmark CRISIL Composite AA ST Bond
Launch Date 3/25/2009
Asset Size Rs. 11,469 crore(As on Aug 31, 2018)
Fund Managers Maneesh Dangi & Sunaina da Cunha
Expense Ratio 1.68% (As on August 31, 2018)
Minimum Lumpsum Rs 1,000
Exit Load For units in excess of 15% of the investment for redemption within 365 days, 1% will be charged
Return AnalysisTrailing Returns (As on October 01st, 2018)
Scheme NameYTDLast 3 YearsLast 5 Years
VR Bond 2.83% 6.17% 7.52%
Category 3.15% 6.98% 8.43%
Aditya Birla Sun Life Medium Term Plan 3.27% 7.55% 9.12%
Risk Analysis
Scheme NameSDBetaSharpe
VR Bond 2.27 - -0.23
Category 2.42 0.94 0.23
Aditya Birla Sun Life Medium Term Plan 2.07 0.81 0.43
As on September 30th, 2018

Who Should Invest?

Investors interested in investing in debt and money market instruments through mutual funds may add this scheme to their portfolio for capital growth over medium term.

ICICI Prudential Advisor Series - Debt Management Fund (G)

This scheme by ICICI Prudential Mutual Fund was earlier known as ICICI Prudential Advisor Series - Dynamic Accrual Plan. This open-ended scheme is a fund of funds that invests to generate optimum returns by taking low risk.

Basic Information
ParametersICICI Prudential Advisor Series - Debt Management Fund
Category Debt: Medium to Long Duration
Benchmark CRISIL Composite Bond
Launch Date 12/18/2003
Asset Size Rs. 241 crore (As on Aug 31, 2018)
Fund Managers Mr. Manish Banthia
Expense Ratio 1.05%(As on August 31, 2018)
Minimum Lumpsum Rs 5,000
Exit Load For units in excess of 10% of the investment for redemption within 182 days, 0.5% will be charged
Return AnalysisTrailing Returns(As on October 01st, 2018)
Scheme NameYTDLast 3 YearsLast 5 Years
VR Bond 2.83% 6.17% 7.52%
Category 1.46% 5.64% 7.61%
ICICI Prudential Advisor Series - Debt Management Fund 4.17% 7.61% 9.38%
Risk Analysis
Scheme NameSDBetaSharpe
VR Bond 2.27 - -0.23
Category 3.78 1.56 -0.24
ICICI Prudential Advisor Series - Debt Management Fund 1.87 0.78 0.52
As on September 30th, 2018

Who Should Invest?

This scheme is for investors who are ready to bear moderate risk on the principal amount invested. Those who wish to add a scheme by ICICI Prudential Mutual Fund which is a fund of funds with short-term investment period may invest in it.

Kotak Credit Risk Fund (G)

Formerly known as Kotak Income Opportunities Fund, this fund by Kotak Mahindra Mutual Fund is an open-ended debt scheme. It mainly invests in the debt, money-market securities, AA and below-rated corporate securities. It maintains the liquidity within the fund at all times.

Basic Information
ParametersKotak Credit Risk Fund
Category Debt: Credit Risk
Benchmark CRISIL Composite AA ST Bond
Launch Date 5/11/2010
Asset Size Rs. 5367 crore(As on Aug 31, 2018)
Fund Managers Deepak Agrawal
Expense Ratio 1.83%(As on August 31, 2018)
Minimum Lumpsum Rs 5,000
Exit Load For units in excess of 10% of the investment for redemption within 365 days, 1% will be charged
Return AnalysisTrailing Returns(As on October 01st, 2018)
Scheme NameYTDLast 3 YearsLast 5 Years
CCIL T Bill Liquidity Weight 2.91% 4.24% 4.87%
Category 3.38% 7.53% 8.71%
Kotak Credit Risk Fund 3.99% 7.64% 8.72%
Risk Analysis
Scheme NameSDBetaSharpe
CCIL T Bill Liquidity Weight 0.24 - -9.32
Category 1.58 3.81 0.56
Kotak Credit Risk Fund 1.6 4 0.66
As on September 30th, 2018

Who Should Invest?

This fund is for investors looking for an opportunity to invest in AA and below rated corporate bonds through mutual funds for medium-term investment period. The risk involved in this scheme is moderately low, therefore conservative investors may invest in it.

Franklin India Low Duration Fund (G)

This fund by Franklin Templeton Mutual Fund invests in the fixed income instruments and corporate bonds to generate regular income over a short-term period.

Basic Information
ParametersFranklin India Low Duration Fund
Category Debt: Low Duration
Benchmark CRISIL Short-Term Bond
Launch Date 2/7/2000
Asset Size Rs. 6487 crore(As on Aug 31, 2018)
Fund Managers Kunal Agrawal and Santosh Kamath
Expense Ratio 0.78%(As on August 31, 2018)
Minimum Lumpsum Rs 10,000
Exit Load For redemption within 90 days: 0.5%
Return AnalysisTrailing Returns(As on October 01st, 2018)
Scheme NameYTDLast 3 YearsLast 5 Years
CCIL T Bill Liquidity Weight 2.91% 4.24% 4.87%
Category 4.82% 7.34% 7.94%
Franklin India Low Duration Fund 5.63% 8.59% 9.22%
Risk Analysis
Scheme NameSDBetaSharpe
CCIL T Bill Liquidity Weight 0.24 - -9.32
Category 0.69 1.79 1.03
Franklin India Low Duration Fund 0.90 1.76 2.06
As on September 30th, 2018

Who Should Invest?

Franklin India Low Duration Fund is for investors willing to earn regular income through investment in securities with low duration via mutual funds.

Points to Consider While Investing in Debt Funds

There are certain points that every investor should keep in mind while investing in debt funds which are mentioned below.

  • Fund Managers - How a fund performs depends on the choices that the fund managers make. It is their decisions and the strategies that they follow which hold the power to turn the result around. Therefore, investors should find out who the fund manager is and the experience that he/she holds.
  • Quality of Portfolio - The securities in which the investment is to be made should be checked. While some schemes might have investment in quality debt securities, others might have investment in the low quality securities.
  • Past Performance - You can notice or go through the past performance chart of a particular fund to get an idea about how the scheme has performed under different market conditions and the changes that it has been through.
  • Risk Management - Although debt funds are low risk to medium risk funds, it is important to note how the same is managed. As under unfavorable conditions, the scheme’s performance may suffer a dip.
  • Tenure - The tenure of the debt funds vary, therefore it is really important to match your portfolio’s investment tenure requirement with that of the scheme.


Invest in the Best Mutual Funds
  • 100% Paperless
  • No Transaction Charges
  • Easy to Invest
  • Safe & Secure

Conclusion

Seeing the recent changes in the Indian bond market, it is recommended that people invest in the debt funds with lower tenure. They should not panic from the news of possible hike in the rate by Reserve Bank of India as these fluctuations are likely to settle in the coming few days. Investors looking forward to investing in debt schemes may do so via MySIPonline. To receive an answer to your investment related query, you may either contact the financial experts or post the same here.

Must Read:

What Changes SEBI Introduced in the New Mutual Fund Debt Categories?- Part 1

What Changes SEBI Introduced in the New Mutual Fund Debt Categories?- Part 2

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