6 reasons to invest in debt mutual funds

Best Performing Mutual Funds - 6 reasons to invest in debt mutual funds


6 reasons to invest in debt mutual funds

(Category: Best performing mutual funds)

There are several investors who want moderate returns, want to take lesser risk, but expect higher returns than bank fixed deposits. One of the best performing mutual funds in such category would be debt mutual funds.

What are debt mutual funds?

Debt mutual funds, primarly invest in debt instruments like debentures, bonds, certificate of deposits (CD’s) of corporate companies, government bonds, government securities etc. These debt mutual funds are either long term debt funds or short term debt mutual funds. Currently these are one of the top performing mutual funds with low risk and moderate returns.

Top six reasons to invest in debt mutual funds

There are various reasons to invest in best performing debt mutual funds.

1)   High returns compared to Bank Fixed deposits: The debt mutual funds in the past have provided annual returns of 8% to 12% which are higher compared to bank fixed deposits.

2)   Easy Liquidity: Like any other mutual funds the debt mutual funds offer easy liquidity. If you want to sell these mutual funds, you can sell them and you can get your investment back within 2 days.

3)   Good investment when interest rates are falling: Currently Indian banks have started slashing the fixed deposit rates and going forward we expect that interest rates would further fall. Under such scenario, the debt mutual funds are best options for investment.

4)   Less risk compared to diversified mutual funds: Diversified mutual funds invest majority in equity and small portion in debt instruments, hence they carry high risk. However for debt mutual funds, they invest majority into debt instruments. A portion of 5% to 20% would be invested in equity markets, hence the downside of the investment is lesser compared to equity diversified mutual funds.

5)   Flexibility in terms of investment or withdrawal: Like any other mutual funds, the debt mutual funds offer flexible terms for investment or for withdrawal. You can select Systematic investment plan to invest periodically or Systematic withdrawal plan to withdraw as per your requirement. Thought bank fixed deposits offer recurring deposit option for regular monthly investment, partial withdrawal or withdrawal of equal monthly installments is not available. Thought there is no entry load for such debt mutual funds, however there is exit load for many debt mutual fund schemes if you want to withdraw within 2- 3 years period.

6)   Best investment option for less risk: These debt mutual funds are best investment options for those who want to participate in equity markets with small exposure, but want to take less risk and earn moderate returns.

Top performing debt mutual funds in India as of today are enclosed below.

Invest in best performing debt mutual funds - Oct - 2012

Conclusion: Debt mutual funds are good compared to bank fixed deposits. However invest in best performing debt mutual funds for long term for getting higher returns. An investor, who want to participate in equity markets to some extent, but want to take low risk, can invest in such debt mutual funds.

Readers, what is your opinion on debt mutual funds? Please give your comments

If you found this article is good, share the link in Twitter/Face book. The links are provided below.

Happy investing in best investment options


Suresh KP

11 thoughts on “6 reasons to invest in debt mutual funds”

  1. Hallo

    Please short time & sequire invest ment fund for Invest , Pls Help me & supprt for Invest in Market .

  2. Dear Suresh,

    Many thanks for your prompt reply.Sorry i have already posted another query as i over looked your reply. Well since i want to invest new , my RM has suggested to invest in the funds mentioned below. Please advise if its really a good forecast :

    Birla Sun Life Dynamic Bond Fund

    Debt Product


    DSP BlackRock Top 100 Equity Fund

    Domestic Equity


    Franklin India Bluechip Fund

    Domestic Equity


    HSBC Cash Fund

    Liquidity Fund


    HSBC Dynamic Fund

    Domestic Equity


    HSBC Income Fund – Short Term Plan

    Debt Product


    HSBC MIP – Savings

    Monthly Income Plans


    ICICI Prudential Dynamic Plan

    Domestic Equity


    ICICI Prudential Focused Bluechip Equity Fund

    Domestic Equity


    ICICI Prudential Short Term Plan

    Debt Product


    Kotak Bond

    Debt Product


  3. Hi Suresh,

    Currently I am planning for SIP investments in various recomended DEBT funds.Is it a right way to build money with minimum risk. One of my friend advices not to invest in debt fund in SIP mode. His suggestion is to invest in lumpsome in the DEBT fund because the NAV's are rarely up-down at DEBT funds and when the interest rates are down then we should invest in debt funds otherwise the return will not be verry good. I want ur expert openion on this.

    1. Suman, SIP mode is used to take care of any volatility in the markets and provide best returns. Since debt funds are very less volatile, you can invest a lumpsum or thru SIP. However the returns are limited here and these are good investment option who want to get higher returns than bank FD, but do not want to take risks. What is your investment objective ?

        1. Suman, all top-10 MF SIP suggested by me are good for long term investment. Since these are across all sectors, your risk is diversified. All the best.

  4. Hi Suresh,

    I am looking for short term(atleast 1 year) investment of 5Lac. What do you suggest to be at optimum side of return. I am considering buying Gold/ deposit in FD as an option then I read this artical. I am in bit confuse state to pick right option. Please assist. Also I am not in India so please prefer where I can invest and track online. Thanks in advance!

  5. Hello suresh,

    In Debt Mutual funds..what is the approximate exit load ,if i want to with draw in 3months time or 6 months time..

    I am planning to put my money around 5L in debt Mutual funds..I am not sure when i can finalise the property it may take min 3months to max 1year please help me it is better option if i invest money in debt mutual funds..



    1. Why don’t you go for fixed deposits where you get 8% to 9% p.a. You can withdraw at any point of time by giving 1-2 days intimation to bank once you finalise a house. Why I am saying is invesing in debt mutual funds, you may not get benefit in case you want to withdraw in 3 months or 6 months. On top of this, you may need to pay 1% exit load if you withdraw before one year. I recommend you to choose this only if you are planning to invest for atleast an year.

Leave a Reply

Your email address will not be published. Required fields are marked *