Over the years, debt mutual funds remain one of the safest investment products for low risk-takers, offering a regular income stream with less risk than equity funds. This was again desirable because one had to revisit the ranking of the debt mutual funds as an investor to make the right investment decisions. The information in this blog will aim at outlining what are some of the best debt mutual funds in categories such as credit risk funds, dynamic bonds, gilt funds, and many others.
What Are Debt Mutual Funds?
Debt mutual funds are those funds where the major portion of the fund’s assets are invested in bonds and other debt securities. These funds are appropriate for anyone who wants to securely preserve money while also gaining a precise rate of profit. It is more stable in terms of fluctuation than equity mutual funds while investing, which makes it favorable for the low-risk takers.
Best Debt Mutual Funds (2024): A Detailed Overview
Here is a precise list of some of the best debt mutual funds one should go for 2024 segregated on the basis of sub-categories like Corporate Bond Funds, Dynamic Bond, Gilt Funds and many more.
| Sr. No. | Category | Sub-Category | Scheme Name | AUM (₹ Cr) | Expense Ratio | 1Y Return | 3Y Return |
| 1 | Debt | Corporate Bond | ICICI Prudential Corporate Bond Fund Direct Plan Growth | ₹26,907.00 | 0.35% | 8.04% | 6.52% |
| 2 | Debt | Corporate Bond | HDFC Corporate Bond Fund Direct Plan Growth Option | ₹30,371.00 | 0.36% | 8.69% | 6.24% |
| 3 | Debt | Dynamic Bond | Aditya Birla Sun Life Dynamic Bond Fund Direct Plan Growth | ₹1,688.00 | 0.64% | 10.31% | 7.28% |
| 4 | Debt | Dynamic Bond | ICICI Prudential All Seasons Bond Fund Direct Plan Growth | ₹12,846.00 | 0.59% | 9.32% | 7.14% |
| 5 | Debt | Gilt Fund | SBI Magnum Gilt Fund Direct Growth | ₹9,501.00 | 0.46% | 9.32% | 7.44% |
| 6 | Debt | Gilt Fund | ICICI Prudential Gilt Fund Direct Plan Growth | ₹6,390.00 | 0.56% | 8.96% | 6.73% |
| 7 | Debt | Banking and PSU | Aditya Birla Sun Life Banking & PSU Debt Fund Direct Plan Growth | ₹9,407.00 | 0.39% | 8.34% | 6.14% |
| 8 | Debt | Banking and PSU | ICICI Prudential Banking and PSU Debt Fund Direct Plan Growth | ₹9,225.00 | 0.39% | 7.87% | 6.44% |
| 9 | Debt | Low Duration | HDFC Low Duration Fund Direct Plan Growth Option | ₹17,940.00 | 0.45% | 7.79% | 6.44% |
| 10 | Debt | Low Duration | Aditya Birla Sun Life Low Duration Direct Plan Growth | ₹10,861.00 | 0.42% | 7.81% | 6.51% |
| 11 | Debt | Money Market | HDFC Money Market Direct Plan Growth Option | ₹28,725.00 | 0.23% | 7.70% | 6.38% |
| 12 | Debt | Money Market | Tata Money Market Fund Direct Plan Growth | ₹27,628.00 | 0.15% | 7.91% | 6.53% |
| 13 | Debt | Liquid | HDFC Liquid Fund Direct Plan Growth Option | ₹64,248.00 | 0.20% | 7.41% | 6.11% |
| 14 | Debt | Liquid | ICICI Prudential Liquid Fund Direct Plan Growth | ₹50,597.00 | 0.20% | 7.46% | 6.12% |
Why Invest in Debt Mutual Funds?
Investing in the best debt mutual funds offers a variety of benefits:
- Capital Preservation: These funds are designed to safeguard your initial investment while offering consistent returns.
- Lower Risk: Debt mutual funds generally have lower volatility and risk compared to equity funds, making them ideal for conservative investors.
- Diversification: Debt funds diversify your portfolio across various fixed-income securities, such as corporate bonds and government securities.
- Tax Efficiency: Debt mutual funds held for over three years qualify for long-term capital gains tax with indexation benefits, which could be more tax-efficient compared to traditional fixed deposits.
Types of Best Debt Mutual Funds
1. Liquid and Money Market Funds
Invest in highly liquid, short-term instruments like treasury bills and commercial papers. These funds are ideal for short-term goals and emergency funds.
Examples:
- HDFC Money Market Direct Plan Growth Option
- Tata Money Market Fund Direct Plan Growth
2. Gilt Funds
Gilt funds are invested only in government securities and are virtually devoid of any credit risk but are sensitive to rate fluctuations.
Examples:
- SBI Magnum Gilt Fund Direct Growth
- ICICI Prudential Gilt Fund Direct Plan Growth
3. Short-Term Funds
This pool usually invests in bonds with maturity of not more than three years and provides security though with relatively higher returns.
Examples:
- ICICI Prudential Corporate Bond Fund Direct Plan Growth
- HDFC Corporate Bond Fund Direct Plan Growth Option.
4. Medium-Term Funds
These are funds that participate in long-term paper securities, with maturities of normally three to five years with an emphasis on higher returns albeit with somewhat higher risk.
Examples:
- ICICI Prudential Corporate Bond Fund Direct Plan Growth
- HDFC Corporate Bond Fund Direct Plan Growth Option
5. Dynamic Bond Funds
These funds shift their portfolio’s relative to the outlook on interest rate changes and are therefore convenient and capable of making healthy returns no matter the status of the market.
Examples:
- Aditya Birla Sun Life Dynamic Bond Fund Direct Plan Growth
- ICICI Prudential All Seasons Bond Fund Direct Plan Growth
6. Credit Risk Funds
It demands more credit risks to achieve greater returns compared to the funds that invest in corporate bonds with lower credit ratings.
Examples:
- HDFC Credit Risk Debt Fund
How to Choose the Best Debt Mutual Fund?
To make an informed decision about investing in the best debt mutual funds, consider the following factors:
Investment Horizon: Your investment horizon should be the final determining factor before you select any debt fund. If the goals are short-term in nature, then a liquid or money market fund should be considered for the investment. But, if the goal is planned for the middle term, then dynamic or medium lock-in period funds can be opted for.
Risk Appetite: There are usually distinct risks associated with different forms of debt funds. Consider your own risk parameters well and choose the funds best suited to this.
Interest Rate Sensitivity: For instance, dynamic bond funds and gilt funds are known to do well when there are changes in interest rates since they may result in huge changes in their returns. Investigate the interest rate environment before making your investment decision.
Conclusion
Even today, Debt mutual funds remain to be a good investment tool since they give reasonable returns as they protect the principal amount invested in the volatile financial market. Choosing only the best debt mutual funds to invest in will allow you to be rewarded with more consistent returns without much potential for loss.
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