Debt Funds
Debt mutual funds are investment funds that primarily invest in fixed-income securities such as government bonds, corporate bonds, treasury bills, and other money market instruments. They aim to provide investors with steady and relatively low-risk returns by earning interest on these debt instruments. Unlike equity funds, they are less volatile as they are not directly linked to stock market performance. Debt funds are suitable for investors seeking stability, liquidity, and moderate returns over short to medium-term horizons, making them ideal for conservative investors or those with low-risk tolerance.
Best Debt Mutual Funds
List of the top-performing debt mutual funds sorted by returns with their AUM and Expense Ratio.
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AUM ₹115 Cr •
Expense 1.03%
AUM ₹1999 Cr •
Expense 0.85%
AUM ₹95 Cr •
Expense 0.45%
AUM ₹189 Cr •
Expense 0.4%
AUM ₹921 Cr •
Expense 0.67%
AUM ₹104 Cr •
Expense 0.04%
AUM ₹521 Cr •
Expense 0.67%
AUM ₹314 Cr •
Expense 1.24%
AUM ₹806 Cr •
Expense 0.36%
AUM ₹141 Cr •
Expense 0.28%
AUM ₹1716 Cr •
Expense 0.64%
AUM ₹6325 Cr •
Expense 0.76%
AUM ₹170 Cr •
Expense 0.79%
AUM ₹13460 Cr •
Expense 0.59%
AUM ₹2285 Cr •
Expense 0.89%
AUM ₹993 Cr •
Expense 0.69%
AUM ₹3322 Cr •
Expense 0.62%
AUM ₹8202 Cr •
Expense 0.56%
AUM ₹295 Cr •
Expense 0.23%
AUM ₹11185 Cr •
Expense 0.46%
Types of Debt Mutual Funds
There are various ways of categorizing debt funds. Here is a look at the different categorizations:
Duration / Maturity based
Categorized by the investment duration
Credit Risk based
For higher yields with credit exposure
Debt: Other
Explore diverse fixed-income options
What are debt funds?
These funds invest your money in fixed income financial instruments like corporate bonds, government bonds and treasury bills etc.
Before moving to Debt Mutual funds, lets first understand what bonds are :- Bonds are loans which are given to the borrowers.
Borrowers can be -
1. Government Institutions
2. Corporate Bodies
3. Banks and PSUs
If a borrower wants to raise funds, they can sell bonds to the bond holder in order to get the money they need. And in return the borrower will repay the principal amount + interest in the form of regular EMIs. So the bond holder gets regular income in regular intervals paid by the borrower.
When you invest in Debt Mutual Funds, you put your money in bonds which are issued by borrowers that are listed above.
For Example - when you invest in Equity Shares, you put your money in shares of the companies, in Debt Funds you put your money in bonds of those companies.
Why add Debt Funds to your portfolio?
Stability - Debt Mutual funds invest your money in stable income sources.
Low Risk - Debt Funds carry low risk as they buy bonds of large and healthy companies.
Diversification - It diversifies your income into government, corporate and public sector bonds.
Give Stability to your portfolio - Investing in debt mutual funds makes your overall portfolio less risky to market movements.
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Advantages of investing in Debt Funds
Debt funds offer stable returns, lower risk, and diversification, making them ideal for conservative investors seeking steady income.
Less Volatile
These mutual funds do not respond to rapid rise and fall in the stock market.
Stable Income
As debt mutual funds are basically loans to borrowers who have high market value - they give you stable income in form of returns.
Diversify your portfolio
Debt mutual funds invest your money in various sources like corporate bonds, government bonds, bank and PSUs etc which increases the exposure of the funds into different sectors.
When do you invest in Debt Funds?
Unexpected Income
When you get an unexpected income from your work - bonus etc or you made some extra profits in your business, rather than keeping that money in your bank, you can invest that money in debt funds which will give your regular returns.
Short term Planned Expense
For example, if you want to fulfill a financial goal in a short period of time, lets say 6 months to 1 year, you should invest in debt mutual funds which will give you stable returns and your investment will not decrease in the time period.
Rebalance your risk
You should invest in Debt Mutual Funds when your financial goal is near and you want to reduce your overall risk exposure.
Who should invest in Debt Funds?
Debt funds are a good option for investors who are cautious with their hard earned money and want a steady income by bearing lower risk.
Income-Oriented Investors
Debt funds are suitable for those seeking regular income, as they provide a predictable cash flow through interest payments.
Conservative Investors
Individuals with a lower risk tolerance can benefit from debt funds, as they offer stability and lower volatility compared to equities.
Investors who don't want to take much risk
Debt Funds are good for investors who don't want to take much risk with their investments and wants a little less but stable returns
Points to consider before investing in Debt Funds
Before investing in debt funds, consider interest rates, credit quality, expenses, manager expertise, investment horizon, and market conditions.
Investment Time Period
One should understand their financial goal and see what the time period they want to invest their amount is.
Expense Ratio
Consider the expense ratio of the fund to ensure lower cost of the mutual fund.
Fund Manager Expertise
Investigate the past performance of the fund manager over his/her past mutual funds and other fixed-income securities.
Market Conditions
Stay informed about the economic conditions like inflation, pandemic etc as these factors can affect the performance of the debt funds.
Limitations of Investing in Debt Funds
Debt funds face interest rate risk, potential for lower returns, and the impact of inflation on real income value.
Credit Risk
Liquidity Risk
If most of the mutual fund holders redeem the fund at the same time, then it would be difficult for the mutual fund companies (AMCs) to liquidate all the money at the same time because they cannot get the money till the time the bond is matured.
Lower Rate of Returns
Debt funds generally give lower rates of returns if compared to equity mutual funds or hybrid mutual funds.
How to Start Investing in Debt Funds with INDmoney
INDmoney is here to make your investment journey smooth and simple. Let us see how you can invest in Debt Funds with INDmoney.
Step 1
Download the INDmoney app and create your free investment account by completing your KYC ( Know Your Customer).
Step 2
Once your Free investment account is ready, you can either search for Debt Mutual Funds or go to the mutual fund section and tap on Debt Mutual Funds.
Step 3
Choose a Debt Mutual Funds by looking at aspects like past returns, volatility, downside capture ratio, AUM, Expense ratios and underlying stocks and sectors.
Step 4
Step 5
Choose the amount that you want to invest as SIP or LumpSum.
Step 6
Should you invest in Debt Mutual Funds?
Investing in debt mutual funds is prudent for income-oriented and risk-averse investors seeking stability, regular income, and capital preservation. However, potential limitations, such as interest rate risks and lower returns compared to equities, should be carefully considered. Assess your financial goals, risk tolerance, and market conditions to determine if debt funds align with your investment strategy.
Frequently Asked Questions
What are Debt Mutual Funds?
Debt Mutual funds are investment vehicles primarily focused on fixed-income securities, providing stability and regular income.
How do Debt Funds work?
These funds invest in bonds, government securities, and other fixed-income instruments, aiming to generate income for investors.
What types of Debt Funds are available?
Debt funds come in various types, including short-term, long-term, and dynamic bond funds, catering to different investment horizons and risk profiles.
What are the advantages of investing in Debt Funds?
Advantages include stable returns, lower risk compared to equities, and diversification through allocation across various fixed-income instruments.
Who should invest in Debt Funds?
Debt funds are suitable for income-oriented investors, conservative individuals, and those prioritizing capital preservation in their investment strategy.
What risks are associated with Debt Funds?
Risks include interest rate risk, potential for lower returns, and the impact of inflation on the real value of income generated.
How to choose the right Debt Fund?
Consider factors like interest rate environment, credit quality, expense ratios, fund manager expertise, investment time period, and current market conditions when selecting a debt fund for your portfolio.
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