What is a Mutual fund?

Mutual funds investment – The opportunity to invest money together. As an investor, buy stocks, bonds and other investments mutually. Mutual fund professionally managed all portfolios.

There are many types of funds that considered the risk factors, If don’t then get basic knowledge that a suitable fund can be chosen and start investing in a Debt mutual fund.

Debt Mutual Funds

A debt mutual funds give a platform to invest money in various types of bonds. Debt is a major market to invest money in.

People who don’t want to take the risk of the market, invest money in the debt funds.

Normally Debt mutual funds give less return compare to the equity and gives a higher return than bank FD.

Reasons to Invest Money in Mutual Fund

  1. Unexpected Cash Flow: If you get extra income from a bonus, lottery, or any other source and you want to park your income in any place. A debt mutual funds will be a good option.
  2. Short-term Planned Expense: Normally in long-term equity is a good option to invest money but in the short-term debt market is good to invest because it gives a stable return.
  3. Rebalancing: After some time you want to transfer your equity into the safe instrument. A debt mutual funds will help to rebalance your portfolio.

 

best debt mutual fund to invest in india 2021

Risk Involve in Debt mutual funds

There are 3 main risks involved in debt mutual funds which are as following

  1. Credit Risk: Debtors or loan takers are not able to pay interest and the principal amount of the loan that type of risk is known as credit risk. CRISIL and other rating agencies help to find the credit rating of the company.
  2. Liquidity Risk: Liquidity risk means the debtor company is not able to pay the interest amount at the time. When the creditor demands money before maturity and at that condition company is not able to pay money that condition is liquidity risk.
  3. Interest Rate Risk: which is the effect of changing interest rates on the value of the scheme’s securities. For example: let’s assume you have a 1,00,000 rupees bond with a coupon rate of 6% and after some time same price coupon bond price increase by 1 % at that condition your bond value will down and the demand for your bond values will go down.

Types of Debt Mutual Funds To Invest

There are various types of debt mutual funds. Some important debt mutual funds are as follow:

  1. Gilt Fund: In a gilt fund 80% of the money is invested in the government bond. This is the safest area to invest money in.  There is no credit risk but interest rate risk is very high. Interest risk high means it may be you get fewer returns than your expectation.
  2. Credit Risk Fund: In this type of debt fund 60% of your money is invested in the highest rating corporate bond. This type of fund gives a higher return than the gilt fund. These funds don’t have credit risk.
  3. Banking and PSU Fund: In this type of debt fund 80% of the money is invested in the banking and public sector unit. There is a low credit risk involved. If you want to invest money for 1 to 3 years this fund will be a good option.
  4. Dynamic Bond Fund: This is a flexible fund. Fund managers invest money for the long term as well as the short term according to the situation of the market. If you have moderate risk tolerance capacity this fund will good option to invest in. Dynamic bond gives higher return. It is good that you invest money 3 to 5 years.

Research Methodology

Objectives

  1. To analyze the risk profile of mutual fund investors.  
  2. To analyze the required objective of the investor in terms of the maturity period, expected returns, etc.
  3. To recommend the best suitable fund to invest in for the mutual fund investor according to his/her risk profile tolerance.

Data collection

Secondary Data: Information that is already available is Secondary Data. In this research, secondary data is collected through various official websites on  various fund data available on it

Debt Mutual Fund

Interpretation of Collected Data

These strategies will help to choose the various type of debt mutual funds. These strategies are applied at any period to select the best debt mutual funds.

1. Check Fund Rating: This is the first stage to scan the debt mutual funds. You have to see the rating of the fund to 3 types of the rating agency  1. CRISIL ( money control)  2. Value research and 3. Morning Star. Only 4 and 5 rating funds will be selected.

2. AUM ( Assets Under Management): AUM is higher the better. AUM tells how much money is invested in this fund.

CAGR: 1,2 and 3 years CAGR is taken to see the average past return of the fund.

Risk Matrix: In the risk matrix, two things are seen. 1. Credit quality and interest rate sensitivity. Credit quality measures fund paying quality and Interest rate sensitivity measure how interest rate change during the period. Lower the sensitivity better it is.

Modified Duration: Modified duration is a formula that expresses the measurable change in the value of a security in response to a change in interest rates.

Yield to maturity: Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. In another word, YTM tells the total actual return of the fund if the fund is not traded then the minimum return you will get this is a YTM.

Fund Manager: Fund manager experience is matters. If any old fund gives a good return and this fund manager is changed in recent then according to our research this fund should be seen as a new fund, therefore, an old fund manager is more preferable.

 

Types of Debt Mutual Funds for Investor and their data

Gilt Fund
Rank Name Rating CAGR AUM
    Value Research Morning star CRISIL 1yr 2yrs 3yrs  
1 DSP Government Securities Fund – Direct Plan-Growth 5 5 5 8.72% 11.70% 10.24 605.54
2 IDFC Government Securities Fund – Investment Plan – Direct Plan-Growth 5 5 4 10.15% 11.93% 10.47% 2369.53
3 Nippon India Gilt Securities Fund- Direct Plan –GrowthGilt 4 5 3 8.49% 11.35% 11.13% 1762.11cr

 

 

Gilt Fund

Name Credit Quality Interest Rate Sensitivity Modified Duration Yield to maturity Fund Manager
           
DSP Government Securities Fund – Direct Plan-Growth High High 6.27yr 5.59% Saurabh Bhatia since 1 march 2018
IDFC Government Securities Fund – Investment Plan – Direct Plan-Growth High High 5.14 yrs 5.85% Suyash Choudhary since 1 Jan 2013
Nippon India Gilt Securities Fund- Direct Plan –GrowthGilt High High 6.40Yrs 5.66% Prasant R Pimple since 25 June 2020

 

 

Credit Risk Debt Fund

Rank Name Rating CAGR AUM
    Value Research Morning star CRISIL 1yr 2yrs 3yrs  
1 HDFC Credit Risk Debt Fund – Direct Plan-Growth 5 5 5 9.87% 9.82% 8.87% 6996.26
2 Axis Credit Risk Fund – Direct Plan-Growth 4 5 4 8.46% 7.07% 7.33% 592.36
3 SBI Credit Risk Fund – Direct Plan-Growth 4 4 4 8.64% 7.90% 7.88% 3589.31cr

 

Credit Risk Debt Fund

Name Credit Quality Interest Rate Sensitivity Modified Duration Yield to maturity Fund Manager
           
HDFC Credit Risk Debt Fund – Direct Plan-Growth Medium Medium 2.44 7.94 Sobhit Mehrotra since 6 march 2014
Axis Credit Risk Fund – Direct Plan-Growth Medium Medium 2 7.15% Devang Shah since 25 June 2014
SBI Credit Risk Fund – Direct Plan-Growth Medium Medium 1.75 6.96% Lokesh Mallaya since 1 feb 2017

 

 

Best Mutual Debt Fund in Banking and PSU Sector

Rank Name Rating CAGR AUM
    Value Research Morning star CRISIL 1yr 2yrs 3yrs  
1 Kotak Banking and PSU Debt Fund – Direct Plan-Growth 4 5 4 8.25% 9.25% 8.93% 11292.36cr
2 IDFC Banking & PSU Debt Fund – Direct Plan-Growth 5 4 3 8.55% 9.74% 8.55% 17,774.1cr
3 LIC MF Banking & PSU Debt – Direct Plan-Growth 4 4 3 6.77% 8.72% 8.36% 2622.42cr
4 Nippon India Banking & PSU Debt Fund – Direct Plan-Growth 4 5 3 8.75% 9.33% 8.84% 7711.92

 

 

Best Mutual Debt Fund in Banking and PSU Sector

Name Credit Quality Interest Rate Sensitivity Modified Duration Yield to maturity Fund Manager
           
Kotak Banking and PSU Debt Fund – Direct Plan-Growth High High 2.46yrs 5.40% Deepak Agrawal since 1 Jan 2013
IDFC Banking & PSU Debt Fund – Direct Plan-Growth High Medium 1.84 yr 4.73% Anurag Mittal since 15 may 2017
LIC MF Banking & PSU Debt – Direct Plan-Growth High Medium 1.95yrs 4.45% Marzban Irani since 10/08/2016
Nippon India Banking & PSU Debt Fund – Direct Plan-Growth High High 2.66yrs 5.14% Prasat R Pimple since 1 Feb 2020

 

 

Debt Dynamic Bond
Rank Name Rating CAGR AUM
    Value Research Morning star CRISIL 1yr 2yrs 3yrs  
1 Kotak Dynamic Bond Fund – Direct Plan-Growth 4 5 5 8.07% 9.92% 9.74% 2680.69 cr
2 DSP Strategic Bond Fund – Direct Plan-Growth 4 4 5 4.82% 10.02% 9.38% 1780.09 cr
3 IDFC Dynamic Bond Fund – Direct Plan-Growth 4 5 5 6.03% 10.94% 10.10% 3113.59  cr
4 SBI Dynamic Bond Fund – Direct Plan-Growth 4 5 4 6.58% 11.05% 9.99% 3076.56 cr

 

Debt Dynamic Bond

Name Credit Quality Interest Rate Sensitivity Modified Duration Yield to maturity Fund Manager
           
Kotak Dynamic Bond Fund – Direct Plan-Growth High High 4.22 6.12% Deepak Agrawal since 1 Jan 2013
DSP Strategic Bond Fund – Direct Plan-Growth High High 7.64 6.05% Saurabh Batia since 1 march 2018
IDFC Dynamic Bond Fund – Direct Plan-Growth High High 5.09 5.83% SuyashChoudhary since 1 Jan 2013
SBI Dynamic Bond Fund – Direct Plan-Growth High High 2.95 4.88% Dinesh Ahuja since 1 jan 2013

 Conclusion

The above analysis will help to find the best debt fund for the investor. An investor can invest money according to their requirement. If investors don’t want to take any risk gilt fund will be a good option. If investors want to park money for the short term and also expect to get a good return then a credit risk fund is a good option.  (Mutual is subject to market risk)

Source: Moneycontrol| NSE | BSE

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  • By Prakash Chandra Gupta
    (B.com, PGDM Finance)

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