Mutual funds that invest primarily in fixed-interest assets like bonds and money market instruments to produce income are known as debt mutual funds, which are often referred to as income funds.
In essence, the fund offers credit to the bond issuers in exchange for interest payments. The fund distributes the interest it earns to its investors in the form of returns.
The procedure is very similar to setting up a fixed deposit with a bank. Debt mutual funds only differ in that they have a variety of fixed-income assets with various maturities and interest rates.
The fund will only select debt securities that will help it achieve its investment objective. Debt fundsโ main objectives are to boost investorsโ wealth and give them a reliable income.
How To Choose Best Debt Mutual Funds
When choosing the best debt mutual funds to invest in, consider the following factors:
- The expense ratio is an annual cost that fund companies charge their clients. Cost-to-return ratios are inversely correlated with returns. Pick a debt mutual funds that invest in bonds and has affordable fees.
- Changes in interest rates have a big impact on debt mutual funds. Bond prices decline as interest rates rise. Bond issuers respond to rising interest rates by developing new debt securities with higher rewards. The value of the older bonds declines as a result. Also impacted by these โolder bondsโ is the NAV (Net Asset Value). Mutual funds that invest in long-term debt are also susceptible to the effects of rising interest rates. This is an excellent time to invest in short-term debt funds.
- Debt mutual funds are known for being among the safest kinds of mutual funds, but like any other market-linked asset, they are not immune to losses. A default risk exists when investing in assets with low credit ratings, and gains may be diminished by falling bond prices.
- Debt mutual funds interest rates are inversely correlated with market interest rates. As a result, no debt mutual fund, no matter how good, can promise a profit. As a result, although earning comparatively low rates of return in an expanding market, it may be possible to generate higher rates of return during a period of dropping interest rates.
1. Bank of India Credit Risk Fund
Bank of India Mutual Fund made its debut with a bond fund on February 27, 2015. The minimum investment in the Bank of India Credit Risk Fund is Rs. 5,000. On 8/3/2022, the NAV was Rs. 10,365. As of June 30th, 2022, we have Rs. 166 cr. in AUM and also an expense ratio of 1.56%.
2. UTI Dynamic Bond Fund
The first episode of this show from UTI Mutual Fund aired on June 16, 2010. 500 Indian Rupees will serve as the initial capital. As of August 3rd, 2022, this investment vehicle was worth Rs. 25.23. As of June 30th, 2022, the assets under administration were worth Rs 362.81 crore, with a 0.92% expense ratio.
3. Baroda BNP Paribas Credit Risk Fund
Baroda BNP Paribas Mutual Funds unveiled this investment option on January 23, 2015. Rs. 5,000 is the absolute bare minimum to get started. The fundโs NAV on August 3, 2022, was Rs. 17.81. As of June 30th, 2022, the average Assets Under Management were Rs. 201.8 crores, and the expense ratio was 1.6%.
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4. Kotak Life Dynamic Bond Fund
The approximately Rs. 1,669 billion Kotak Life Dynamic Bond Investment fund plan is managed by Kotak Mahindra. The following are some of Kotak Life Dynamic Bond Fundโs standout characteristics:
Over the past five, seven, and 10 years, the fund has generated returns of 5.86%, 7.82%, and 7.76%, respectively.
5. HDFC Credit Risk Debt Fund
On March 25, 2014, HDFC Mutual Fund unveiled a mutual debt fund. Rs. 5,000 is the absolute bare minimum to get started. The fundโs NAV on August 3, 2022, was Rs. 19.53.
6. ICICI Prudential Income Fund
The following are the ICICI Prudential Income Fundโs standout characteristics:
- On December 23, 2009, the ICICI Prudential Income Fund was founded.
- The total amount is estimated to be worth roughly Rs. 10,373 crores.
- NAV as of this moment is 25.81% of book value.
- The fundโs highest rate of return over a 10-year time horizon is 7.82%, while the rates for five years are 5.82% and for seven years is 7.23%.
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7. JM Low Duration Fund
JM Financial Mutual Funds first made this particular investment choice available on September 27, 2006. Rs. 5,000 is the absolute bare minimum to get started. On August 3, 2022, the fundโs NAV was Rs. 30.99. As of June 30th, 2022, the expenditure ratio of Rs. 142 Cr. in AUM would be 0.24%.
8. Money Market Funds
A money market fund is a type of mutual fund where the management makes investments in securities having a maximum maturity of one year in the money market. Consider these possibilities for your long-term portfolio if you want to invest for more than three years.
9. Gilt Constant Maturity Funds
Bonds issued by the Government of India with a maturity date of at least 10 years in the future are investments in Gilt Constant Maturity Funds. Due to their extensive reliance on long-term bonds, funds in this category are particularly susceptible to changes in interest rates. Because of this, you should only invest in this type of fund if you have a very long time horizon and can withstand severe volatility. Of course, there is no possibility of a default or credit downgrade.
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10. Nippon India Mutual Fund
The Nippon India Mutual Fund was established in 1996 as a joint venture between the Reliance Capital of India and the Japanese Nippon Life Insurance Company. After Nippon purchased Relianceโs shares in October 2019, the fund firm changed its name to Nippon India Mutual Fund. Nippon Life Insurance Company is the sponsor, and Reliance Capital Trustee Co. Ltd. is the trustee.
FAQ: People Also Ask
Which debt fund gives highest return?
- Bank of India Credit Risk Fund
- UTI Dynamic Bond Fund
- Baroda BNP Paribas Credit Risk Fund
- Kotak Life Dynamic Bond Fund
- ICICI Prudential Income Fund
How do I find a good debt mutual fund?
Additionally, investors should evaluate credit rating agenciesโ credit ratings, which range from AAA+ to D, with AAA+ being the highest. In other words, a higher-rated fund is safer than a lower-rated fund.
Conclusion
A debt mutual funds with higher rates of return is one option, but itโs not the only factor to take into account. You should decide your goals, level of risk management, and time frame for the investment before investing in a debt fund. Risk-takers may find interest in credit risk funds, which invests in low-rated assets.
These funds produce better returns because they assume greater credit risk. Investors that prioritizeย buying assets with a good credit rating can find success in corporate bond funds by reducing their risk exposure.
