Best Debt Funds to Invest in India

The ultimate financial objective is to save money for the future, and an effective way to achieve the goal is in the form of investment. One such form is the Debt funds. Debt funds, in general, are a form of mutual fund that provides financial security for a fixed duration. The investment is based on the fixed turnover providing instruments like deposit certificates and government T-bills.

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The key feature of the debt fund is to generate a stable income by appreciating the value of the fund. However, the returns depend entirely on the performance of the funds in the market.

Types of Debt funds

To know the best Debt fund to invest in, one should know its kinds. You can choose your fund only when you have a clear idea of the kinds of Debt funds.

Dynamic Bond Funds

In accordance with the name, these funds are dynamic in nature. Here, the composition of the portfolio will keep changing with the changing rate of interest regime. They have various periods of maturity because these funds can take calls on the interest rate. The investment can be made in a longer or shorter maturity, depending on the instruments.

Income Funds

Income funds depend on the rate of interest. It offers lengthened maturities for the invested Debt securities. Hence it is more consistent than dynamic bond funds. An average period of maturity for income funds is about five to six years. It is one of the best Debt funds to invest in.

Liquid Funds

Liquid funds come with an investment in debt securities with a period of maturity of up to 91 days. This is the reason that liquid funds are considered a riskless investment. It has barely seen any negative returns. These funds stand as a better replacement for savings bank accounts. They offer close liquidity along with a higher return.

Short-term and Ultra Short-term Debt Funds

In short-term funds, you can invest in debt instruments with a shorter maturity period, ranging from one to three years. They are perfect for conservative depositors as they will not get affected by the fluctuation in interest rates. Ultra short-term funds have a maturity period of 3 to 6 months. The risk factor associated with these is low as they offer low maturity duration.

Gilt Funds

These funds have an investment only in government instruments as they are highly valued securities with minimal credit risk. It is one of the perfect options for fixed income investors, along with the lower level of risk.

Evaluation Parameters for the Best Debt Fund to Invest

There are several parameters that need to be considered to select the best Debt fund to invest in.

Return Amount

You have to consider the stability of the returns in terms of every interval, i.e., one, three and five years. It is preferable to invest in a fund that has exceeded its yardstick index and other funds in a compatible manner over various ranges of investments.

Financial Ratio

The financial ratio will help in analysing the fund with factors such as standard deviation, Sharpe index, alpha and beta. When you invest in a fund with a higher Sharpe index, you can get higher returns under the additional risk taken.

Performance

You need to make sure that the fund you invest in, needs to have a good historical performance. This means that it is better to ensure that the fund has a stable and successful track record over five to ten years. This is the key factor in selecting the best Debt fund to invest in.

The Ratio of Expense

This is the amount you require to maintain your fund. You need to be careful in selecting the Debt fund in such a way that it offers a low expense ratio but with high performance.

Eligibility and Documents required to Invest in Debt Funds

Any Indian citizen above the age of 18 years can invest in Debt funds. Here are some of the documents that you require while investing in funds,

  • Know Your Customer Compliance
  • Proof of Identity
  • Proof of Address
  • A cheque with your name in it or the bank statement

Minors are also allowed to invest in Debt funds. For the process, a declaration from the third party is essential.

Debt Funds Providers

Here is the list of some of the debt funds providers:

Aditya Birla Sun Life Floating Rate Fund Direct Plan

This plan's main objective is to raise an even income by providing a portfolio that consists of fixed-income instruments. These instruments give a floating rate of interest. And the fund type is floating rate. The period of maturity and their interest rates are as follows:

  • Five years – 8.14%
  • Three years – 7.92%
  • One year – 7.34%

DSP Government Securities Fund Direct Plan

DSP Government Securities Fund provides an opportunity to the investors in earning a good return. The investment is based on the instruments that are issued by the Indian Central Government. The fund type is Government bond. The maturity and the rate of interest are:

  • Five years – 9.9%
  • Three years – 10.8%
  • One year – 8.3%

Edelweiss Government Securities Fund

It is an open-ended debt plan that is invested primarily in government instruments over various maturity periods. The plan provides a varied portfolio with a combination of both State and Central government bonds. Edelweiss Government Securities Fund is a government bond type, and here are the maturities with the interest rate:

  • Five years – 9.3%
  • Three years – 10.36%
  • One year – 9.4%

L&T Triple Ace Bond Fund Direct Plan

The prime objective of this bond is to raise a reasonable return and, in this bond, you can invest in the fixed-income instruments ranked AA+. L&T Triple Ace Bond Fund is a corporate type bond. The period of maturity and the interest rates are:

  • Five years – 8.76%
  • Three years – 9.74%
  • One year – 8.43%

SBI Magnum Gilt Fund Regular Plan

This scheme is best suited for the investors who plan to invest money for a longer duration on government instruments provided by both the State and the Central government. The fund type of the SBI Magnum Gilt Fund is a government bond, and the maturities are as follows:

  • Five years – 9.42%
  • Three years – 9.7%
  • One year – 7.7%

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˜Top 5 plans based on annualized premium, for bookings made in the first 6 months of FY 24-25. Policybazaar does not endorse, rate or recommend any particular insurer or insurance product offered by any insurer. This list of plans listed here comprise of insurance products offered by all the insurance partners of Policybazaar. For a complete list of insurers in India refer to the Insurance Regulatory and Development Authority of India website, www.irdai.gov.in
^^The information relating to mutual funds presented in this article is for educational purpose only and is not meant for sale. Investment is subject to market risks and the risk is borne by the investor. Please consult your financial advisor before planning your investments.

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