A Debt fund can be defined as a mutual fund that invests in fixed income securities only such as treasury bills and bonds. These funds are considered to be safer than equity funds. In addition, these are best suitable for those who have a more conservative approach towards investment.
There are several investment options in the world of Debt Mutual Funds. Some of the types of mutual funds in India are:
Gilt funds are the ones which invest in low-risk debt such as government securities that lead to better returns to some extent than your average savings account.
Short term Plans
Short term plans, as the name suggests, are the short term, open ended plans. These invests in those assets which have a maturity minimum of 15-90 days or lesser. These can be called as a low-risk low-return tool.
These types of funds invest in very short-term market assets such as treasury bills and government securities. One of the major reasons to love these is that they provide more returns than your savings bank account but offer similar liquidity in case of any emergency.
Fixed maturity plans
These are close-ended fixed-maturity plans and so can only invest in them when a new fund offer comes out in the market. These involve fixed time period post and invest across debt-based assets such as well-rated securities as well as corporate bonds.
Debt funds are best suitable for risk-takers or for those who are not prepared to have equity exposure. Debt funds help in growing investors’ wealth with little to no risk. In addition, these top mutual funds attempt to provide regular income. Generally, investors stay invested in debt funds for a short to medium period of time.
It is important for you to choose an appropriate debt fund as per your investment horizon. Liquid funds may be best suitable for a short-term investor who usually parks his surplus funds in a savings bank account. Liquid funds provide returns in the range between 7-9%. These also provide flexibility in terms of withdrawals at any time, just as your regular savings bank account.
If you need to ride the interest rate volatility, then dynamic bond funds might be the best option for you. These bond funds are suitable for a medium-term investment horizon in order to earn higher returns than a 5-year bank fixed deposit.
Best debt funds in India are:
Aditya Birla Sun Life Digital India Fund- Growth- Direct plan
ICICI Prudential Multicap Fund – Dividend
Nippon India GILT Securities Fund – Direct Plan
IDFC Govt. Securities Fund Investment Plan
ICICI Prudential Constant Maturity Gilt Fund- Direct Plan
SBI Magnum Gilt Fund – Direct Plan
DSP Government Securities Fund – Direct Plan