5 Best Performing Debt Funds – 18% return in one year

debt funds

Debt funds are one of the most popular investment options. It is also seen as an alternative to the fixed deposits. A fixed deposit and debt funds usually generate a return in the range of 9-10%. However, few debt funds have generated magnificent returns in last one year. If you have surplus money and you are planning to invest it in the fixed deposit for a long term, I would advise you to invest in the long-term debt fund instead of fixed deposit. Let’s take a look at 5 Best Performing Debt Funds and compelling reason for investing in the debt funds.

What is Debt Fund?

Debt fund is professionally managed funds that invest your money in fixed or variable return investment schemes like a government bond, treasury bills, money market instruments, corporate deposit etc. Debt funds are much safer compared to other mutual funds as they do not invest in equity market. So, if you are a conservative investor you can plan to invest in debt fund.

 Debt funds are classified in various categories such as –

  • Short term Debt Fund
  • Ultra Short Term Debt Fund
  • Long Term Debt fund
  • Gilt Fund
  • Income Funds

Out of these, I will be discussing Long term debt fund. Details of  other debt funds can be found on my earlier post.

Long Term Debt Fund

Long term debt fund are for long term investment usually 5-10 years. Long term debt fund invests in the government of India bonds and corporate securities for the longer duration usually 5-10 years. Long term debt fund are sensitive to interest rate variation. Long term debt fund perform better when interest rates are falling. So, time, when the interest rate is falling you should make an investment in long term debt fund

Dynamic Fund

A subcategory of long term debt fund is Dynamic Bond Fund. The dynamic fund has adopted flexible investment strategy. They change investment strategy with interest cycle. Fund manager moves money into short or long term bonds depending on the outlook on interest rates. They are very good bet in case there is volatility.

Income Fund

Another subcategory of long term debt fund is Income fund. Income funds are debt funds that invest in a combination of government securities and money market instrument. Income fund enables fund manager to actively manage portfolio based on interest rate movement.

Benefits of investment in Debt fund are given below.

  • Debt Mutual Funds usually gives higher returns compare to fixed deposit.
  • Investment in this fund is not affected by equity market volatility.
  • You can withdraw your money anytime. You need to pay exit load.
  • Debt fund offers better post tax returns.
  • You can beat Inflation.
  • Debt fund adds stability to your investment portfolio.
  • You have multiple selection options in debt fund.

5 Best Performing Debt Funds

Based on past one year performance (Feb, 2016 to Feb 2017) best performing debt funds are ICICI Prudential Long Term Plan – Direct Plan (G), SBI Dynamic Bond Fund (G), HDFC High Interest Fund – Dynamic Plan (G), Reliance Dynamic Bond Fund (G) and Birla Sun Life Income Plus – Retail (G). All these funds have offered double-digit return in past one year.

best debt funds

Should you invest in Debt Funds?

Answer of this question depends on your investment objective, risk capacity and time horizon.

If you are conservative investor falling under 30% tax bracket and planning to invest in the fixed deposit you should invest your money in debt fund for better post tax returns. Another alternative is to invest in the balance fund.

Do you keep debt fund in your portfolio?

Don’t forget to share these 5 Best Performing Debt Funds with your friends on facebook and twitter.

Article by Raviraj

Hi, I am Raviraj. I am passionate about money matters and finance. I have 10 years of rich experience in the field of financial planning, Investments & Insurance. I have written 850+ article on this blog. If you like my efforts kindly subscribe to this blog and also let your friends know about this website by sharing.

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6 Comments

  1. sapan shah says:

    Hi, sir can I keep all my saving account (me, my wife, and son) in one bank for the simplicity? It is advisible? Also IDBI bank is good bank ? Because NPA of IDBI bank is high, is there any chance to become bankrup? Pls suggest one or two good bank name. Thank you

  2. Dr. Jawahar Lal bansal says:

    Dear Raviraj,Your analysis is very useful and informative. As you know after a recent RBI event,debt funds fell 2-3 percent.Kindly tell us which debt fund from the above list did not fall.

  3. Sunil salgarkar joshi says:

    Hi very good article I am invested in brila sunlife dynamic bond fund a long term view of more than five years is this write choice iam falling under 20%

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