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.
Also Read – Top 5 Small Cap Mid Cap Mutual Funds – 60% return last year
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.
Also Read – Top 20 Best Mutual Funds SIP to invest in India for 2018
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.
Should you invest in Debt Funds?
Answer of this question depends on your investment objective, risk capacity and time horizon.
Also Read – Best Performing Mutual Funds India last five years
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?
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Sunil salgarkar joshi
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%
Raviraj Parekh
Dear Sunil,
Birla Sunlife Dynamic is short term debt fund.Ranked 3rd by CRISIL.Performing well and expected to perform in future.
Dr. Jawahar Lal bansal
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.
Raviraj Parekh
Dear Sir,
All funds were affected by RBI event.However, it was minimum effect to ICICI pru long term plan.
sapan shah
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
Raviraj Parekh
Hi Sapan,
You can do so for simplicity but I would advice to keep it in two banks.I suggest SBI and HDFC.
Sindhu
Hi Ravi
I invested in SIP of BSL and HDFC tax saver 2000rs monthly and it is getting end by Jan. I need your suggestion for investing in debt mutual fund. I am looking for short term. Need details related to it.
Raviraj Parekh
Dear Sindhu,
You can invest in Reliance Gilt Securities Fund.It is consistent performer since last five years. Rating of this fund is also good.
Harshit Patel
Hi,
what category of fun would u recommend now , for a tenure of 3-5 years.
Thanks,
Harshit Patel
Raviraj Parekh
Hi Harshit,
I recommend investment in Balance Fund as you will get advantage of equity and debt both.
SB
Sir, kindly let me know which is the best debt fund for medium term (3 years). i fall under 30% tax. i don’t want to keep the amount in FDs
Raviraj Parekh
Hi,
I suggest to invest in “ICICI Prudential Long term Plan – Direct” and “SBI Dynamic Bond”.