July 24, 2024
Investment

Mutual fund investing: 7 debt funds delivered maximum returns in the past ten years


In its December meeting, the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) opted to maintain the repo rate at 6.5 per cent, extending a streak of five consecutive meetings with no changes. This decision, as anticipated by analysts, underscores the MPC’s prudent strategy of carefully managing inflationary concerns while concurrently fostering economic growth.

Unchanging interest rates bring positive implications for debt investments. This is because a decrease in interest rates elevates the value of debt securities. Investors may occasionally neglect debt funds in comparison to equity funds. One factor contributing to this tendency is the simplicity of comprehending equity funds, as monitoring stock price fluctuations on various platforms is straightforward.

Nonetheless, when compared to equities, debt funds typically present lower potential returns in the long run. The relationship between bond prices and returns is inversely linked to interest rates. Stable or declining interest rates may result in increased bond prices but also potential capital losses.

There are various debt funds to invest from, though a lot depends on which parameters you consider before investing in any one or more of them.

Name of the debt fund

5-year returns (in %)

10-year returns (in %)

Kotak Low Duration Fund

6.84

7.98

Aditya Birla Sun Life Low Duration Fund

6.95

7.83

ICICI Prudential Savings Fund

6.75

7.60

HDFC Low Duration Fund

6.82

7.54

Axis Treasury Advantage Fund

6.58

7.47

Nippon India Low Duration Fund

6.48

7.42

Baroda BNP Paribas Low Duration Fund

6.47

7.41

Source: AMFI (As of December 25, 2023)

To address diverse investment objectives and risk tolerances, a variety of debt funds are accessible:

Money market funds: These funds invest in short-term debt instruments such as treasury bills and commercial paper, providing high liquidity and minimal risk.

Short-duration debt funds: Focused on debt instruments with maturities of up to three years, these funds strike a balance between stability and the potential for higher returns compared to money market funds.

Long-duration debt funds: These funds invest in debt instruments with maturities exceeding three years, presenting higher potential returns while also exposing investors to increased interest rate risk.

Gilt funds: Primarily invested in government bonds, gilt funds offer a high level of safety and predictable returns.

Corporate bond funds: These funds invest in bonds issued by corporations, providing the potential for higher returns but also carrying higher credit risk.

Before selecting any debt fund, it is crucial to meticulously evaluate your specific investment objectives, risk tolerance, and time horizon. Though not as attention-grabbing as growth stocks, debt funds serve as valuable components for constructing a well-balanced and resilient portfolio. One should not underestimate their potential for stable returns, consistent income, and contribution to diversification. Nevertheless, seeking guidance from a financial advisor can assist you in choosing the most suitable debt fund aligned with your requirements and risk profile.

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