Top 5 Debt Mutual Funds for You to Invest in Volatile Indian Market

The stock market has become very volatile recently, and the investors are looking for alternative investments like Debt mutual funds, golds funds, real estates etc. Actually, the investments depends upon the Investment Objective, Risk Appetite and Investment horizon. Debt mutual funds are expected to generate a steady income through the low risk-low returns investments.

The fund managers for debt fund allocate their funds in high quality FDs, commercial papers, government bond, treasury bills, etc. Almost all the fund houses like SBI mutual fund, Reliance mutual fund, HDFC mutual fund etc offer debt mutual fund options.

Strategies for Debt mutual funds

Debt mutual funds generally follow two strategies, which includes duration and accrual. Duration funds benefit from interest rate movements, and from the accrual funds the investors earn regular income from corporate bonds.

Previously, the maturity of funds was not clear, which made it difficult for investors to track the fund’s performance. However now, the transparency has improved as the fund’s portfolio duration is given and are specified for each category.

Risks Associated with Debt mutual funds

There are major two risks associated with Debt mutual funds. They are Credit Risk and Interest Risk.

Credit risk is the risk arising when a borrower may default in payment of interest or capital within a time horizon. The rating companies give the credit rating of the instrument. Therefore, the instruments with lowest credit rating have the highest credit risk and offers higher yields. In comparison, the instruments with higher credit rating will have lower credit risk and therefore offer lower yields.

The second important risk associated with debt fund is the interest risk. Interest rate risk arises due to due to a change in the level of interest rates, which will affect the investment’s value. Generally, when an interest rates rises, prices on previously issued fixed-income securities falls, as the investors will make investments to buy new securities that offer higher rates. Therefore, the interest rates and prices of securities are inversely related.

Top 5 Debt Mutual Funds (Long term and Short term)

Fund	Crisil Rank	1 – Year Return (%)
ICICI Pru Long Term – Direct (G)	5 Star	6.3
Kotak Corporate Bond – Direct (G)	5 Star	7.0
Kotak Corporate Bond – Standard (G)	5 Star	6.7
L&T Short Term Income -Direct (G)	5 Star	7.3
HDFC Short Term Opp.- Direct (G)	5 Star	6.4

Source: moneycontrol.com, Performance as on March 2018

Equity Mutual Funds definitely have given better return in a year, but debt mutual funds have also given good returns than fixed deposits. Therefore the investors should also have debt mutual funds in their portfolio.