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6 Best Debt Mutual Funds for Lump sum Investments 2025
Debt Mutual Fund schemes in India have grown over the years. As a result, the best performing mutual debt funds in the Market keep on changing. There are various rating systems in place to judge a mutual fund scheme, namely CRISIL, Morning Star, ICRA. These systems evaluate a mutual fund in terms of returns, Standard Deviation, credit quality of securities, rate movement guidance by RBI, etc.
Why To Invest Lump Sum in Debt Mutual Funds?
- Better return than prevailing Fixed Deposit (FD) & Recurring deposit (RD) rates across banks
- Returns are linked to debt markets
- Immediate (T+1) Redemption online
- Indexation (Debt Taxation benefits) benefits on returns over three years
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Best Lumpsum Debt Mutual Funds FY 25 - 26
Below are the top ranked funds from Debt Categories primarily funds having AUM > 500 Crore & are in Ultra-short, Corporate bond, Credit Risk, Low Duration sub categories && Having maturity of less than 3 years and providing highest yields.
Top 6 Lump sum Debt Mutual Funds
Fund NAV Net Assets (Cr) Min Investment 3 MO (%) 6 MO (%) 1 YR (%) 3 YR (%) 2024 (%) Debt Yield (YTM) Mod. Duration Eff. Maturity Nippon India Credit Risk Fund Growth ₹34.7332
↑ 0.04 ₹1,001 500 3.2 5.2 9.6 8.1 8.3 9.01% 2Y 4D 2Y 4M 10D Kotak Credit Risk Fund Growth ₹29.2809
↑ 0.05 ₹709 5,000 3.3 4.8 8.3 7 7.1 8.57% 2Y 4M 13D 2Y 11M 23D LIC MF Savings Fund Growth ₹39.289
↑ 0.02 ₹1,834 5,000 2.3 4 7.6 6.6 7.1 8.06% 1Y 1M 4D 1Y 2M 16D L&T Credit Risk Fund Growth ₹32.1535
↑ 0.03 ₹598 10,000 15.6 17.5 21.8 11.2 7.2 7.89% 2Y 2M 19D 2Y 11M 5D Aditya Birla Sun Life Savings Fund Growth ₹543.904
↑ 0.23 ₹13,294 1,000 2.3 4.1 8 7.3 7.9 7.75% 6M 25D 7M 28D Nippon India Low Duration Fund Growth ₹3,717.87
↑ 2.49 ₹6,876 500 2.4 4.1 7.9 6.9 7.4 7.75% 11M 1D 1Y 2M 25D Note: Returns up to 1 year are on absolute basis & more than 1 year are on CAGR basis. as on 16 May 25
(Erstwhile Reliance Regular Savings Fund - Debt Plan) The primary investment objective of this option is to generate optimal returns consistent with moderate level of risk. This income may be complemented by capital appreciation of the portfolio. Accordingly investments shall predominantly be made in Debt & Money Market Instruments. Nippon India Credit Risk Fund is a Debt - Credit Risk fund was launched on 8 Jun 05. It is a fund with Moderate risk and has given a Below is the key information for Nippon India Credit Risk Fund Returns up to 1 year are on (Erstwhile Kotak Income Opportunities Fund) The investment objective of the scheme is to generate income by investing in debt/ and money market securities across the yield curve and credit spectrum. The scheme will also seek to maintain reasonable liquidity within the fund. Kotak Credit Risk Fund is a Debt - Credit Risk fund was launched on 11 May 10. It is a fund with Moderately Low risk and has given a Below is the key information for Kotak Credit Risk Fund Returns up to 1 year are on (Erstwhile LIC MF Savings Plus Fund) The investment objective of the Scheme is to generate income by investing in a portfolio of quality short term debt securities. There can be no assurance that the investment objective of the scheme will be realized. LIC MF Savings Fund is a Debt - Low Duration fund was launched on 29 May 03. It is a fund with Moderately Low risk and has given a Below is the key information for LIC MF Savings Fund Returns up to 1 year are on (Erstwhile L&T Income Opportunities Fund) The Scheme seeks to generate regular returns and capital appreciation by investing in debt (including securitised debt), government and money market securities. L&T Credit Risk Fund is a Debt - Credit Risk fund was launched on 8 Oct 09. It is a fund with Moderate risk and has given a Below is the key information for L&T Credit Risk Fund Returns up to 1 year are on The primary objective of the schemes is to generate regular income through investments in debt and money market instruments. Income maybe generated through the receipt of coupon payments or the purchase and sale of securities in the underlying portfolio. The schemes will under normal market conditions, invest its net assets in fixed income securities, money market instruments, cash and cash equivalents. Aditya Birla Sun Life Savings Fund is a Debt - Ultrashort Bond fund was launched on 16 Apr 03. It is a fund with Moderately Low risk and has given a Below is the key information for Aditya Birla Sun Life Savings Fund Returns up to 1 year are on (Erstwhile Reliance Money Manager Fund) The investment objective of the Scheme is to generate optimal returns consistent with moderate levels of risk and liquidity by investing in debt securities and money market securities. Nippon India Low Duration Fund is a Debt - Low Duration fund was launched on 20 Mar 07. It is a fund with Moderately Low risk and has given a Below is the key information for Nippon India Low Duration Fund Returns up to 1 year are on 1. Nippon India Credit Risk Fund
CAGR/Annualized return of 6.4% since its launch. Ranked 21 in Credit Risk category. Return for 2024 was 8.3% , 2023 was 7.9% and 2022 was 3.9% . Nippon India Credit Risk Fund
Growth Launch Date 8 Jun 05 NAV (16 May 25) ₹34.7332 ↑ 0.04 (0.11 %) Net Assets (Cr) ₹1,001 on 31 Mar 25 Category Debt - Credit Risk AMC Nippon Life Asset Management Ltd. Rating ☆☆ Risk Moderate Expense Ratio 1.63 Sharpe Ratio 3.05 Information Ratio 0 Alpha Ratio 0 Min Investment 500 Min SIP Investment 100 Exit Load 0-12 Months (1%),12 Months and above(NIL) Yield to Maturity 9.01% Effective Maturity 2 Years 4 Months 10 Days Modified Duration 2 Years 4 Days Growth of 10,000 investment over the years.
Date Value 30 Apr 20 ₹10,000 30 Apr 21 ₹10,919 30 Apr 22 ₹12,225 30 Apr 23 ₹12,923 30 Apr 24 ₹13,903 30 Apr 25 ₹15,209 Returns for Nippon India Credit Risk Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 May 25 Duration Returns 1 Month 1% 3 Month 3.2% 6 Month 5.2% 1 Year 9.6% 3 Year 8.1% 5 Year 8.7% 10 Year 15 Year Since launch 6.4% Historical performance (Yearly) on absolute basis
Year Returns 2024 8.3% 2023 7.9% 2022 3.9% 2021 13.5% 2020 -5.9% 2019 1.9% 2018 6.1% 2017 7% 2016 10% 2015 8.8% Fund Manager information for Nippon India Credit Risk Fund
Name Since Tenure Kinjal Desai 25 May 18 6.94 Yr. Sushil Budhia 1 Feb 20 5.25 Yr. Data below for Nippon India Credit Risk Fund as on 31 Mar 25
Asset Allocation
Asset Class Value Cash 8.53% Debt 91.19% Other 0.29% Debt Sector Allocation
Sector Value Corporate 73.61% Government 17.57% Cash Equivalent 8.53% Credit Quality
Rating Value A 21.1% AA 48.88% AAA 30.01% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.02% Govt Stock 2031
Sovereign Bonds | -8% ₹78 Cr 7,500,000 Summit Digitel Infrastructure Limited
Debentures | -6% ₹60 Cr 600 Renew Solar Energy (Jharkhand Five) Private Limited
Debentures | -5% ₹49 Cr 5,000 Century Textiles And Industries Limited
Debentures | -5% ₹46 Cr 4,500 Truhome Finance Ltd. 9.25%
Debentures | -4% ₹41 Cr 4,000 Prestige Projects Private Limited 11.75%
Debentures | -4% ₹40 Cr 4,000 Sandur Manganese And Iron Ores Limited (The) 11%
Debentures | -4% ₹39 Cr 4,000 Bamboo Hotel And Global Centre (Delhi) Private Limited
Debentures | -4% ₹38 Cr 3,800
↑ 3,800 Delhi International Airport Limited
Debentures | -4% ₹36 Cr 3,500 Vedanta Limited
Debentures | -4% ₹35 Cr 3,500 2. Kotak Credit Risk Fund
CAGR/Annualized return of 7.4% since its launch. Ranked 18 in Credit Risk category. Return for 2024 was 7.1% , 2023 was 6.4% and 2022 was 0.9% . Kotak Credit Risk Fund
Growth Launch Date 11 May 10 NAV (16 May 25) ₹29.2809 ↑ 0.05 (0.18 %) Net Assets (Cr) ₹709 on 31 Mar 25 Category Debt - Credit Risk AMC Kotak Mahindra Asset Management Co Ltd Rating ☆☆☆ Risk Moderately Low Expense Ratio 1.7 Sharpe Ratio -0.34 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 1,000 Exit Load 0-1 Years (1%),1 Years and above(NIL) Yield to Maturity 8.57% Effective Maturity 2 Years 11 Months 23 Days Modified Duration 2 Years 4 Months 13 Days Growth of 10,000 investment over the years.
Date Value 30 Apr 20 ₹10,000 30 Apr 21 ₹11,029 30 Apr 22 ₹11,304 30 Apr 23 ₹11,766 30 Apr 24 ₹12,613 30 Apr 25 ₹13,588 Returns for Kotak Credit Risk Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 May 25 Duration Returns 1 Month 1.5% 3 Month 3.3% 6 Month 4.8% 1 Year 8.3% 3 Year 7% 5 Year 6.3% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 2024 7.1% 2023 6.4% 2022 0.9% 2021 5.3% 2020 6.6% 2019 9% 2018 6.2% 2017 6.6% 2016 10.4% 2015 9.1% Fund Manager information for Kotak Credit Risk Fund
Name Since Tenure Deepak Agrawal 11 May 10 14.98 Yr. Sunit garg 1 Nov 22 2.5 Yr. Data below for Kotak Credit Risk Fund as on 31 Mar 25
Asset Allocation
Asset Class Value Cash 2.33% Equity 2.22% Debt 91.66% Other 3.79% Debt Sector Allocation
Sector Value Corporate 73.16% Government 14.47% Securitized 4.03% Cash Equivalent 2.33% Credit Quality
Rating Value A 15.12% AA 60.33% AAA 24.55% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.18% Govt Stock 2033
Sovereign Bonds | -9% ₹65 Cr 6,165,000
↓ -700,000 Godrej Industries Limited
Debentures | -7% ₹51 Cr 5,000 Tata Projects Ltd.
Debentures | -7% ₹50 Cr 5,000 Bamboo Hotel And Global Centre (Delhi) Private Limited
Debentures | -7% ₹50 Cr 5,000 Vedanta Limited
Debentures | -7% ₹50 Cr 5,000 Century Textiles And Industries Limited
Debentures | -6% ₹45 Cr 4,500 Aditya Birla Renewables Limited
Debentures | -6% ₹40 Cr 4,000 Indostar Capital Finance Limited
Debentures | -6% ₹40 Cr 4,000 Au Small Finance Bank Limited
Debentures | -4% ₹30 Cr 30 Embassy Office Parks Reit
Unlisted bonds | -4% ₹29 Cr 768,208 3. LIC MF Savings Fund
CAGR/Annualized return of 6.4% since its launch. Ranked 65 in Low Duration category. Return for 2024 was 7.1% , 2023 was 6.5% and 2022 was 3.8% . LIC MF Savings Fund
Growth Launch Date 29 May 03 NAV (16 May 25) ₹39.289 ↑ 0.02 (0.06 %) Net Assets (Cr) ₹1,834 on 15 Apr 25 Category Debt - Low Duration AMC LIC Mutual Fund Asset Mgmt Co Ltd Rating ☆☆ Risk Moderately Low Expense Ratio 0.87 Sharpe Ratio 0.72 Information Ratio 0 Alpha Ratio 0 Min Investment 5,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 8.06% Effective Maturity 1 Year 2 Months 16 Days Modified Duration 1 Year 1 Month 4 Days Growth of 10,000 investment over the years.
Date Value 30 Apr 20 ₹10,000 30 Apr 21 ₹10,704 30 Apr 22 ₹11,044 30 Apr 23 ₹11,608 30 Apr 24 ₹12,375 30 Apr 25 ₹13,312 Returns for LIC MF Savings Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 May 25 Duration Returns 1 Month 0.7% 3 Month 2.3% 6 Month 4% 1 Year 7.6% 3 Year 6.6% 5 Year 5.8% 10 Year 15 Year Since launch 6.4% Historical performance (Yearly) on absolute basis
Year Returns 2024 7.1% 2023 6.5% 2022 3.8% 2021 3.7% 2020 7% 2019 3.5% 2018 7.2% 2017 6.5% 2016 8.3% 2015 7.7% Fund Manager information for LIC MF Savings Fund
Name Since Tenure Rahul Singh 7 Sep 15 9.65 Yr. Data below for LIC MF Savings Fund as on 15 Apr 25
Asset Allocation
Asset Class Value Cash 63.23% Debt 36.56% Other 0.21% Debt Sector Allocation
Sector Value Cash Equivalent 43.22% Corporate 39.91% Government 16.67% Credit Quality
Rating Value AA 8.07% AAA 91.93% Top Securities Holdings / Portfolio
Name Holding Value Quantity 364 DTB
Sovereign Bonds | -5% ₹100 Cr 10,000,000 India (Republic of)
- | -5% ₹97 Cr 10,000,000
↑ 10,000,000 Rural Electrification Corporation Limited
Debentures | -4% ₹76 Cr 7,500
↑ 5,000 Shriram Finance Limited
Debentures | -3% ₹55 Cr 5,000 National Bank For Agriculture And Rural Development
Debentures | -3% ₹53 Cr 5,000 Power Finance Corporation Ltd.
Debentures | -3% ₹53 Cr 5,000 8.25% Gic Housing Finance Ltd.
Debentures | -3% ₹52 Cr 5,000 Power Finance Corporation Limited
Debentures | -3% ₹52 Cr 500 National Bank For Agriculture And Rural Development
Debentures | -3% ₹51 Cr 5,000 Rec Limited
Debentures | -3% ₹51 Cr 500 4. L&T Credit Risk Fund
CAGR/Annualized return of 7.8% since its launch. Ranked 12 in Credit Risk category. Return for 2024 was 7.2% , 2023 was 6.5% and 2022 was 3.2% . L&T Credit Risk Fund
Growth Launch Date 8 Oct 09 NAV (16 May 25) ₹32.1535 ↑ 0.03 (0.09 %) Net Assets (Cr) ₹598 on 31 Mar 25 Category Debt - Credit Risk AMC L&T Investment Management Ltd Rating ☆☆☆ Risk Moderate Expense Ratio 1.65 Sharpe Ratio 1.01 Information Ratio 0 Alpha Ratio 0 Min Investment 10,000 Min SIP Investment 1,000 Exit Load 0-1 Years (1%),1 Years and above(NIL) Yield to Maturity 7.89% Effective Maturity 2 Years 11 Months 5 Days Modified Duration 2 Years 2 Months 19 Days Growth of 10,000 investment over the years.
Date Value 30 Apr 20 ₹10,000 30 Apr 21 ₹10,850 30 Apr 22 ₹11,405 30 Apr 23 ₹11,966 30 Apr 24 ₹12,717 30 Apr 25 ₹15,470 Returns for L&T Credit Risk Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 May 25 Duration Returns 1 Month 12% 3 Month 15.6% 6 Month 17.5% 1 Year 21.8% 3 Year 11.2% 5 Year 9.4% 10 Year 15 Year Since launch 7.8% Historical performance (Yearly) on absolute basis
Year Returns 2024 7.2% 2023 6.5% 2022 3.2% 2021 5.7% 2020 5% 2019 2.3% 2018 5.6% 2017 7.2% 2016 10.1% 2015 9.4% Fund Manager information for L&T Credit Risk Fund
Name Since Tenure Shriram Ramanathan 24 Nov 12 12.44 Yr. Data below for L&T Credit Risk Fund as on 31 Mar 25
Asset Allocation
Asset Class Value Cash 6.01% Debt 93.72% Other 0.27% Debt Sector Allocation
Sector Value Corporate 66.25% Government 24.79% Cash Equivalent 8.7% Credit Quality
Rating Value AA 66.88% AAA 33.12% Top Securities Holdings / Portfolio
Name Holding Value Quantity 7.18% Govt Stock 2033
Sovereign Bonds | -8% ₹48 Cr 4,500,000 Nuvoco Vistas Corporation Limited
Debentures | -6% ₹37 Cr 350 Tata Housing Development Co Ltd.
Debentures | -6% ₹36 Cr 3,500 7.32% Govt Stock 2030
Sovereign Bonds | -5% ₹32 Cr 3,000,000 National Bank For Agriculture And Rural Development
Debentures | -5% ₹27 Cr 2,500 Ongc Petro Additions Limited
Debentures | -4% ₹27 Cr 2,500 Aditya Birla Renewables Limited
Debentures | -4% ₹26 Cr 2,500 Nirma Limited
Debentures | -4% ₹26 Cr 2,500 JSW Steel Limited
Debentures | -4% ₹25 Cr 250 Tata Projects Limited
Debentures | -4% ₹21 Cr 2,000 5. Aditya Birla Sun Life Savings Fund
CAGR/Annualized return of 7.4% since its launch. Ranked 6 in Ultrashort Bond category. Return for 2024 was 7.9% , 2023 was 7.2% and 2022 was 4.8% . Aditya Birla Sun Life Savings Fund
Growth Launch Date 16 Apr 03 NAV (16 May 25) ₹543.904 ↑ 0.23 (0.04 %) Net Assets (Cr) ₹13,294 on 31 Mar 25 Category Debt - Ultrashort Bond AMC Birla Sun Life Asset Management Co Ltd Rating ☆☆☆☆☆ Risk Moderately Low Expense Ratio 0.54 Sharpe Ratio 3.09 Information Ratio 0 Alpha Ratio 0 Min Investment 1,000 Min SIP Investment 1,000 Exit Load NIL Yield to Maturity 7.75% Effective Maturity 7 Months 28 Days Modified Duration 6 Months 25 Days Growth of 10,000 investment over the years.
Date Value 30 Apr 20 ₹10,000 30 Apr 21 ₹10,651 30 Apr 22 ₹11,083 30 Apr 23 ₹11,715 30 Apr 24 ₹12,595 30 Apr 25 ₹13,598 Returns for Aditya Birla Sun Life Savings Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 May 25 Duration Returns 1 Month 0.7% 3 Month 2.3% 6 Month 4.1% 1 Year 8% 3 Year 7.3% 5 Year 6.3% 10 Year 15 Year Since launch 7.4% Historical performance (Yearly) on absolute basis
Year Returns 2024 7.9% 2023 7.2% 2022 4.8% 2021 3.9% 2020 7% 2019 8.5% 2018 7.6% 2017 7.2% 2016 9.2% 2015 8.9% Fund Manager information for Aditya Birla Sun Life Savings Fund
Name Since Tenure Sunaina Cunha 20 Jun 14 10.87 Yr. Kaustubh Gupta 15 Jul 11 13.8 Yr. Monika Gandhi 22 Mar 21 4.11 Yr. Data below for Aditya Birla Sun Life Savings Fund as on 31 Mar 25
Asset Allocation
Asset Class Value Cash 39.41% Debt 60.27% Other 0.31% Debt Sector Allocation
Sector Value Corporate 66.69% Cash Equivalent 20.4% Government 12.6% Credit Quality
Rating Value AA 39.1% AAA 60.9% Top Securities Holdings / Portfolio
Name Holding Value Quantity Shriram Finance Company Limited
Debentures | -4% ₹606 Cr 60,000 Nirma Limited
Debentures | -3% ₹488 Cr 48,500 364 DTB
Sovereign Bonds | -3% ₹474 Cr 47,500,000 Small Industries Development Bank of India
Debentures | -3% ₹424 Cr 9,000 Aditya BSL Liquid Dir Gr
Investment Fund | -2% ₹351 Cr 8,342,533
↑ 564,007 182 DTB 29082025
Sovereign Bonds | -2% ₹342 Cr 35,000,000
↑ 35,000,000 Mankind Pharma Ltd
Debentures | -2% ₹308 Cr 30,500 National Bank For Agriculture And Rural Development
Debentures | -2% ₹304 Cr 30,000
↑ 30,000 Avanse Financial Services Ltd 9.40%
Debentures | -2% ₹301 Cr 30,000 ICICI Home Finance Company Limited
Debentures | -2% ₹271 Cr 27,000 6. Nippon India Low Duration Fund
CAGR/Annualized return of 7.5% since its launch. Ranked 31 in Low Duration category. Return for 2024 was 7.4% , 2023 was 6.7% and 2022 was 4.2% . Nippon India Low Duration Fund
Growth Launch Date 20 Mar 07 NAV (16 May 25) ₹3,717.87 ↑ 2.49 (0.07 %) Net Assets (Cr) ₹6,876 on 31 Mar 25 Category Debt - Low Duration AMC Nippon Life Asset Management Ltd. Rating ☆☆☆ Risk Moderately Low Expense Ratio 0.94 Sharpe Ratio 1.62 Information Ratio 0 Alpha Ratio 0 Min Investment 500 Min SIP Investment 100 Exit Load NIL Yield to Maturity 7.75% Effective Maturity 1 Year 2 Months 25 Days Modified Duration 11 Months 1 Day Growth of 10,000 investment over the years.
Date Value 30 Apr 20 ₹10,000 30 Apr 21 ₹10,710 30 Apr 22 ₹11,127 30 Apr 23 ₹11,711 30 Apr 24 ₹12,519 30 Apr 25 ₹13,498 Returns for Nippon India Low Duration Fund
absolute basis & more than 1 year are on CAGR (Compound Annual Growth Rate) basis. as on 16 May 25 Duration Returns 1 Month 0.7% 3 Month 2.4% 6 Month 4.1% 1 Year 7.9% 3 Year 6.9% 5 Year 6.1% 10 Year 15 Year Since launch 7.5% Historical performance (Yearly) on absolute basis
Year Returns 2024 7.4% 2023 6.7% 2022 4.2% 2021 4.1% 2020 7.3% 2019 7% 2018 7.4% 2017 6.6% 2016 8.5% 2015 8.4% Fund Manager information for Nippon India Low Duration Fund
Name Since Tenure Vivek Sharma 1 Feb 20 5.25 Yr. Kinjal Desai 25 May 18 6.94 Yr. Data below for Nippon India Low Duration Fund as on 31 Mar 25
Asset Allocation
Asset Class Value Cash 33.35% Debt 66.33% Other 0.31% Debt Sector Allocation
Sector Value Corporate 69.82% Government 19.62% Cash Equivalent 10.24% Credit Quality
Rating Value AA 13.97% AAA 86.03% Top Securities Holdings / Portfolio
Name Holding Value Quantity 9.35% Telangana State Industrial Infrastructure Corporation Limited
Debentures | -3% ₹202 Cr 20,000 National Bank For Agriculture And Rural Development
Debentures | -3% ₹196 Cr 19,500 Indinfravit Trust
Debentures | -2% ₹173 Cr 18,000 Highways Infrastructure Trust
Debentures | -2% ₹171 Cr 1,750 182 DTB 12062025
Sovereign Bonds | -2% ₹169 Cr 17,000,000 Rec Limited
Debentures | -2% ₹156 Cr 15,500 Ncd Small Industries Development Bank Of India
Debentures | -2% ₹152 Cr 15,000 NAOMI 05 2024
Unlisted bonds | -2% ₹150 Cr 10,000 Hinduja Leyland Finance Limited
Debentures | -2% ₹143 Cr 14,000 Shriram Finance Limited
Debentures | -2% ₹136 Cr 13,500
Smart Tips to Look for in Debt Funds
1. Yield
The yield is a measure of the interest Income generated by the Bonds in the Portfolio.
For instance, let's assume that a bond has a Face Value of INR 100 with an 8 percent coupon rate. This means that the investor will earn INR 8 p.a., on each bond that he invests in. As the bonds are traded in the Open Market, the price will fluctuate each Business Day. The interest rates rise and fall and demand for the bonds moves up and down. And this impacts the price of the bond. Let’s assume interest rates rise to 10 percent. Even then the investor will continue to earn INR 8. So to increase the yield to 10 percent, which is the current market rate of interest, the price of the bond will have to drop to INR 80.
In another instance, lets assume that the interest rates fall to 6 percent. Again, the investor will continue to earn INR 8. This time the price of the bond will have to go up to INR 133.
If we look at these assumptions, there are two aspects to it- the one is that the yield is not fixed, but fluctuates to changes in the interest rate. The second one is the price of the bond moves inversely to interest rates. It moves to maintain a level where it will attract buyers.
2. Yield to Maturity
The yield to maturity(ytm) of a debt mutual fund indicates the running yield of the fund. When comparing debt funds on the Basis of YTM, one should also look at that fact that how is the extra yield being generated. Is this at the cost of as lower portfolio quality? Investing in not so good quality instruments has its own issues. You don't want to end up investing in a Debt fund which has such bonds or securities that may Default later on. So, always look at the portfolio yield and balance it off with the credit quality.
3. Modified Duration
Modified duration provides a fair indication of a bond’s sensitivity to a change in interest rates. The higher the duration, the more Volatility the bond exhibits with a change in interest rates
4. Credit Quality of Portfolio
In order to invest in Best Debt Funds, checking the credit quality of the bonds and debt securities is an essential parameter. Bonds are assigned a credit rating by various agencies based on their ability to pay the money back. A bond with AAA rating is considered to be the best credit rating and also implies a safe and secure investment. If one truly wants safety and considers this as the paramount parameter in selecting the best debt fund, then getting into a fund with very high-quality debt instruments (AAA or AA+) may be the desired option.
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FAQs
1. How do debt fund managers identify which is high-quality security?
A: Debt fund managers have their techniques for evaluating each bond and assessing the debtor's chances of defaulting to pay the bond. Usually, the higher the credit rating lesser is the chance for the creditor defaulting.
2. Why is debt mutual funds low-risk?
A: Debt mutual funds deal with securities and bonds along other money market instruments. The chances of these instruments failing are usually less, and hence, your investment will remain secure, thereby making debt mutual funds low-risk investments.
3. Do fund managers invest in low-quality securities?
A: Yes, sometimes fund managers do invest in low-quality securities if chances of good ROI exist. However, this will be a calculated risk taken by your fund manager and only if the portfolio of investment already has stable, high-quality securities.
4. Is there any short-term debt mutual fund?
A: Yes, if you opt for a Liquid Fund in which investments are made in money market instruments that have a maturity of 91 days, then you can realize your investment in a matter of three months. This is a short-term investment that you can undertake to get a better understanding of debt mutual funds.
5. Can I invest long-term in a debt mutual fund?
A: Yes, you can invest long-term in debt mutual funds. For example, suppose you invest in the Nippon India Credit Risk Fund or the ICICI Prudential Regular Savings Fund. In that case, it is better that you hold your investment at least for one year, 5 months, and 19 days and 2 years, one month, and 2 days respectively, to get maximum ROI. But you can keep investing beyond that for 3 years.
All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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