Are you looking for a safe and profitable investment option for your lumpsum funds in 2021?
Debt mutual funds could be a great choice! Debt mutual funds invest in fixed-income instruments such as government securities, corporate bonds, and money market instruments, making them a relatively low-risk investment option compared to equity mutual funds. In this blog, we will discuss the best debt mutual funds for lumpsum investment in 2021, based on their performance and historical returns.
Before we dive into the list of top debt mutual funds, let’s understand a few key factors to consider when choosing a debt mutual fund for lumpsum investment:
- Credit Quality: It’s essential to assess the credit quality of the debt instruments in which the mutual fund invests. Higher-rated instruments are generally considered safer, but may offer lower returns, while lower-rated instruments may carry higher risk but offer higher returns.
- Duration: Duration refers to the average time until a bond’s cash flows are received by the investor. Debt mutual funds with shorter duration are less susceptible to interest rate changes and are relatively less risky, while those with longer duration may be more sensitive to interest rate fluctuations.
- Expense Ratio: The expense ratio of a mutual fund includes management fees, administrative expenses, and other costs associated with managing the fund. A lower expense ratio can boost your returns over the long term.
- Historical Performance: While past performance does not guarantee future returns, it’s important to review the historical performance of a debt mutual fund to assess its consistency and ability to generate returns.
With these factors in mind, here are some of the best debt mutual funds for lumpsum investment in 2021:
- Axis Short Term Fund: This debt mutual fund has a short duration, which makes it less susceptible to interest rate changes. It primarily invests in high-quality corporate bonds and government securities. Axis Short Term Fund has consistently delivered competitive returns in the past, making it a popular choice among investors.
- Aditya Birla Sun Life Savings Fund: This is a low-risk debt mutual fund that primarily invests in money market instruments and short-term debt instruments. It offers reasonable returns with relatively lower risk compared to other debt funds. Aditya Birla Sun Life Savings Fund has a track record of stable returns and is suitable for conservative investors.
- HDFC Corporate Bond Fund: This debt mutual fund has a moderate duration and invests in high-quality corporate bonds. It aims to generate regular income with relatively low risk. HDFC Corporate Bond Fund has a good historical performance and has consistently delivered competitive returns.
- ICICI Prudential Banking and PSU Debt Fund: This is a debt mutual fund that primarily invests in debt instruments issued by banks and public sector undertakings (PSUs). It has a relatively longer duration compared to other debt funds, which makes it suitable for investors with a slightly higher risk appetite. ICICI Prudential Banking and PSU Debt Fund has delivered good historical returns and is suitable for investors looking for higher returns with moderate risk.
- SBI Magnum Ultra Short Duration Fund: This is a low-risk debt mutual fund that invests in short-term debt instruments such as commercial papers, certificates of deposit, and treasury bills. It has a short duration, which makes it less susceptible to interest rate changes. SBI Magnum Ultra Short Duration Fund has a history of stable returns and is suitable for investors with a short-term investment horizon.
- Franklin India Low Duration Fund: This debt mutual fund has a short duration and primarily invests in debt instruments with high credit quality. It aims to generate regular income with relatively lower risk. Franklin India Low Duration Fund has a good historical performance and has been a preferred choice for conservative investors.
- UTI Banking & PSU Debt Fund: This is a debt mutual fund that primarily invests in debt instruments issued by banks and public sector undertakings (PSUs). It has a moderate duration and aims to generate regular income with relatively low risk. UTI Banking & PSU Debt Fund has delivered competitive returns in the past and is suitable for investors looking for stability in their investments.
- IDFC Bond Fund – Short Term Plan: This debt mutual fund has a short duration and invests in high-quality corporate bonds and government securities. It aims to generate regular income with relatively lower risk. IDFC Bond Fund – Short Term Plan has a consistent track record of stable returns and is suitable for conservative investors.
- Kotak Low Duration Fund: This is a low-risk debt mutual fund that invests in debt instruments with short duration. It aims to generate regular income with relatively lower risk. Kotak Low Duration Fund has a history of stable returns and is suitable for investors looking for short-term investment options with minimal risk.
- DSP BlackRock Low Duration Fund: This is a debt mutual fund with a short duration that invests in high-quality corporate bonds and government securities. It aims to generate regular income with relatively lower risk. DSP BlackRock Low Duration Fund has a good historical performance and is suitable for conservative investors.
Conclusion
In conclusion, debt mutual funds can be a suitable option for lumpsum investment in 2021, considering their relatively lower risk compared to equity mutual funds. However, it’s crucial to thoroughly research and evaluate various factors such as credit quality, duration, expense ratio, and historical performance before making an investment decision. It’s always advisable to consult with a qualified financial advisor to understand your individual financial situation and investment goals. Remember to diversify your investments and review your portfolio periodically to ensure it aligns with your financial objectives. Happy investing!
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Frequently Asked Questions (FAQs)
What are debt mutual funds?
Debt mutual funds are mutual funds that primarily invest in fixed income securities such as government bonds, corporate bonds, and money market instruments. They are considered relatively less risky compared to equity mutual funds as they provide regular income with lower volatility.
How do debt mutual funds generate returns?
Debt mutual funds generate returns through interest income earned from the fixed income securities they invest in. When these securities mature or are sold, the fund receives the principal amount along with any interest earned, which is then passed on to the investors as returns.
Are debt mutual funds safe?
While debt mutual funds are generally considered less risky compared to equity mutual funds, they are not completely risk-free. The risk in debt mutual funds arises from factors such as credit risk (default risk of the issuer), interest rate risk (changes in market interest rates), and liquidity risk (ability to sell securities at the desired time). It’s important to carefully evaluate the risk factors associated with each debt mutual fund before investing.
What are the different types of debt mutual funds?
Debt mutual funds can be categorized into various types based on their duration, credit quality, and investment objectives. Some common types include ultra-short duration funds, short-term funds, corporate bond funds, government bond funds, and dynamic bond funds.
How should I choose a debt mutual fund for lumpsum investment?
When choosing a debt mutual fund for lumpsum investment, it’s important to consider factors such as the fund’s historical performance, credit quality of the portfolio, expense ratio, risk profile, and investment objectives. It’s also crucial to align your investment choice with your individual risk tolerance and investment goals.
What is the ideal investment horizon for debt mutual funds?
The ideal investment horizon for debt mutual funds can vary depending on the type of fund. For short-term debt funds, a horizon of 1-3 years is usually recommended, while for long-term debt funds, a horizon of 3-5 years or more may be suitable. However, it’s important to review your investment horizon periodically and make adjustments as needed.
How are debt mutual funds taxed?
Debt mutual funds are subject to capital gains tax based on the holding period. Short-term capital gains (holding period of up to 3 years) are taxed at the individual’s income tax slab rate, while long-term capital gains (holding period of more than 3 years) are taxed at 20% with the benefit of indexation.
Can I redeem my investment in debt mutual funds before maturity?
Yes, debt mutual funds are open-ended funds that allow investors to redeem their investments partially or fully before maturity. However, it’s important to note that redeeming before maturity may attract exit loads (fees) depending on the fund’s terms and conditions.
Can debt mutual funds provide regular income?
Yes, debt mutual funds can provide regular income in the form of interest payments received from the fixed income securities they hold. Some debt mutual funds also offer options for systematic withdrawal plans (SWP), which allow investors to receive regular income at pre-determined intervals.
Are debt mutual funds suitable for conservative investors?
Yes, debt mutual funds can be suitable for conservative investors who are looking for relatively lower-risk investment options compared to equity mutual funds. Debt mutual funds provide stability, regular income, and potentially higher returns than traditional fixed deposits, making them a viable option for conservative investors.
