If you are looking for ways to figure out which are the best debt mutual funds to invest in India than you are at the right place.
Its easy to just pick the debt fund which is currently giving the highest rate of return or invest in a fund which is 5 star rated by some agency but that's not the correct way.
I will try and show you the right way to invest in a debt mutual fund as per my own investing experience in a step by step manner while also simultaneously showing you the top rated debt mutual funds as well as the highest rated debt mutual funds overall
I will be covering these 7 points feel free to jump into the right section as per your choice
Its easy to just pick the debt fund which is currently giving the highest rate of return or invest in a fund which is 5 star rated by some agency but that's not the correct way.
I will try and show you the right way to invest in a debt mutual fund as per my own investing experience in a step by step manner while also simultaneously showing you the top rated debt mutual funds as well as the highest rated debt mutual funds overall
I will be covering these 7 points feel free to jump into the right section as per your choice
- What is a debt fund
- Debt Mutual Fund vs Fixed Deposits
- How to choose a suitable debt mutual fund
- Best Debt Funds to Invest in 2017
- Best Debt Funds for Long Term
- Top Rated Debt Mutual Funds
- Top Performing Debt Mutual Funds by Returns
- How To Invest : SIP vs Lumpsum investment in debt fund
What is a debt fund
Mutual Funds that invest their investors money in bonds , treasury bills and other fixed income securities are called debt funds. Debt Mutual Funds are lower risk funds compared to equity mutual funds as they don't invest in stocks. Debt Funds are also subdivided into 7 categories- Ultra Short term Debt Mutual Funds
- Short Term Debt Mutual Funds
- Gilt Short Term Mutual Funds
- Income Mutual Funds
- Gilt Medium and Long term Mutual Funds
- Dynamic Bond Funds
- Credit Opportunities Fund
Debt Mutual Fund vs Fixed Deposits
- Taxation: Income from Fixed Deposits are directly added to your income and taxed at your current tax slab while Debt Funds if they are held for more than 3 years are considered as long term capital gains and are taxed much lower by allowing you to increase your costs by indexation and than the gains are charged at 20% rate.
- Risk: Debt funds have slightly higher risk than Fixed Deposit as they carry both credit risk and interest rate risk.
- Returns: You can get higher returns from investing in debt mutual fund than fixed deposits depending on the kind of risk the mutual fund you are investing in is taking.
How to choose a suitable debt mutual fund
While selecting a debt mutual fund you should only answer three questions what is the kind of risk you can take, what is the time period you want you to invest in and what is the current interest rate scenario . If you are more technical oriented than you should look at these three aspects Average Maturity, Modified Duration and Yield to MaturityWhat is the Kind of risk you Can Take:
This simple table should help you choose the correct debt mutual fund category based on your risk profile.| Risk Profile | Kind of Debt Fund |
|---|---|
| Very Low | Liquid Funds,Ultra Short Term Funds |
| Low | Short Term Fund,Gilt Short Term Funds |
| Medium | Long Term Funds,Gilt Long Term Funds |
| High | Dynamic Bond Fund, Credit Opportunities Fund |
| Highest | Hybrid or Balanced fund debt oriented |
Despite being less riskier than equity funds Each debt mutual funds is exposed to three risks
- Interest Rate Risk: Fluctuation in interest rates
- Credit Risk: Risk of default of underlying security.
- Liquidity Risk: The measure of ease with which underlying security of a fund can be sold.
