Best Debt Mutual Funds 2021: A Comprehensive Guide
Debt mutual funds are an excellent investment option for those seeking steady returns with relatively lower risk. With the economic volatility brought about by the pandemic, it is more crucial than ever to make informed investment decisions. In this blog, we’ll take a closer look at the best debt mutual funds to consider in 2021.
What are Debt Mutual Funds?
Debt mutual funds invest in fixed-income instruments such as bonds, government securities, and money market instruments. These funds generate regular income through interest payments and are relatively less volatile compared to equity mutual funds. Debt mutual funds are suitable for investors who have a low to moderate risk appetite and want to earn better returns than traditional fixed deposit investments.
Factors to Consider When Choosing a Debt Mutual Fund
Before selecting a debt mutual fund, you must consider various factors such as the fund’s investment objective, the credit rating of the underlying securities, expense ratio, and historical returns. It is crucial to evaluate the fund’s performance over the long term, rather than just looking at short-term returns.
Best Debt Mutual Funds 2021: Top Picks
- Axis Short Term Fund
Axis Short Term Fund is a low-risk investment option that aims to generate income through investments in short-term debt and money market instruments. The fund has delivered consistent returns over the past few years and has an expense ratio of 0.24%.
- Kotak Corporate Bond Fund
Kotak Corporate Bond Fund invests in high-quality corporate bonds with a credit rating of AA+ and above. The fund has a low-interest rate risk and is suitable for investors seeking stable returns. The expense ratio of the fund is 0.45%.
- HDFC Corporate Bond Fund
HDFC Corporate Bond Fund is another high-quality debt mutual fund that invests in corporate bonds with a credit rating of AA+ and above. The fund has a low-interest rate risk and has consistently delivered higher returns than the benchmark. The expense ratio of the fund is 0.45%.
- ICICI Prudential Corporate Bond Fund
ICICI Prudential Corporate Bond Fund is a low-risk debt mutual fund that invests in corporate bonds with a credit rating of AA+ and above. The fund has a diversified portfolio and aims to generate steady income for investors. The expense ratio of the fund is 0.45%.
- SBI Magnum Medium Duration Fund
SBI Magnum Medium Duration Fund is a medium-risk investment option that invests in debt and money market instruments with a maturity period of 3-4 years. The fund aims to generate steady returns through investments in high-quality securities. The expense ratio of the fund is 0.61%.
Conclusion
Debt mutual funds offer a stable investment option for those seeking regular income and moderate risk. It is essential to evaluate the fund’s investment objective, credit rating of underlying securities, historical returns, and expense ratio before making an investment decision. The funds listed above are some of the best debt mutual funds to consider in 2021. However, it is recommended to consult with a financial advisor before making any investment decisions.
Debt mutual funds are known for their stable returns and low volatility. They invest in fixed-income securities such as bonds, government securities, and money market instruments. The returns generated by these funds come from the interest payments made by these securities. Debt mutual funds are less risky than equity mutual funds, making them suitable for investors who have a low to moderate risk appetite.
When choosing a debt mutual fund, it is essential to consider the investment objective of the fund, the credit rating of the underlying securities, the expense ratio, and the historical returns. It is also crucial to evaluate the fund’s performance over the long term to ensure that it meets your investment goals.
The Axis Short Term Fund is a popular debt mutual fund that invests in short-term debt and money market instruments. The fund has consistently delivered good returns over the past few years, making it a popular choice among investors. The Kotak Corporate Bond Fund and HDFC Corporate Bond Fund invest in high-quality corporate bonds with a credit rating of AA+ and above. These funds have a low-interest rate risk and are suitable for investors seeking stable returns.
The ICICI Prudential Corporate Bond Fund is another low-risk debt mutual fund that invests in corporate bonds with a credit rating of AA+ and above. The fund has a diversified portfolio and aims to generate steady income for investors. The SBI Magnum Medium Duration Fund is a medium-risk investment option that invests in debt and money market instruments with a maturity period of 3-4 years. The fund aims to generate steady returns through investments in high-quality securities.
It is important to note that while debt mutual funds are relatively less risky than equity mutual funds, they are not entirely risk-free. The performance of these funds is subject to market fluctuations, interest rate changes, and credit risk. Therefore, it is recommended to diversify your investments and consult with a financial advisor before making any investment decisions.
In conclusion, debt mutual funds offer a stable investment option for investors seeking regular income and moderate risk. The funds listed above are some of the best debt mutual funds to consider in 2021. However, it is important to conduct your own research and consult with a financial advisor before making any investment decisions.
Read more useful content:
Frequently Asked Questions (FAQs)
What are debt mutual funds?
A: Debt mutual funds are a type of mutual fund that invests in fixed-income securities such as bonds, government securities, and money market instruments. They are less risky than equity mutual funds and provide stable returns to investors.
What is the difference between debt mutual funds and equity mutual funds?
A: Debt mutual funds invest in fixed-income securities, while equity mutual funds invest in stocks. Debt mutual funds are less risky and provide stable returns, while equity mutual funds are more volatile and provide higher returns over the long term.
How do debt mutual funds generate returns?
A: Debt mutual funds generate returns through interest payments made by the securities they invest in. The returns are relatively stable and predictable compared to equity mutual funds.
What are the risks associated with debt mutual funds?
A: The risks associated with debt mutual funds include market risk, interest rate risk, and credit risk. While debt mutual funds are less risky than equity mutual funds, they are not entirely risk-free.
How do I choose a debt mutual fund?
A: When choosing a debt mutual fund, it is essential to consider the investment objective of the fund, the credit rating of the underlying securities, the expense ratio, and the historical returns. It is also crucial to evaluate the fund’s performance over the long term to ensure that it meets your investment goals.
What is the minimum investment required for debt mutual funds?
A: The minimum investment required for debt mutual funds varies from fund to fund. Some funds may require a minimum investment of Rs. 1000, while others may require a minimum investment of Rs. 5000 or more.
What is the expense ratio of debt mutual funds?
A: The expense ratio of debt mutual funds varies from fund to fund. It includes the management fees, administrative expenses, and other expenses incurred by the fund. It is important to consider the expense ratio when choosing a debt mutual fund.
Can I redeem my investment in debt mutual funds anytime?
A: Yes, you can redeem your investment in debt mutual funds anytime. However, it is recommended to hold the investment for at least 1-2 years to maximize returns and avoid short-term capital gains tax.
How are debt mutual funds taxed?
A: Debt mutual funds are taxed based on the holding period. If the investment is held for less than 3 years, the gains are treated as short-term capital gains and taxed at the investor’s tax slab rate. If the investment is held for more than 3 years, the gains are treated as long-term capital gains and taxed at 20% after indexation.
Are debt mutual funds suitable for retired individuals?
A: Yes, debt mutual funds are suitable for retired individuals who have a low to moderate risk appetite and want to generate regular income. These funds provide stable returns and are less risky than equity mutual funds.
