10 Debt Mutual Funds with 1 Year return up to 27% in 2021

10 Debt Mutual Funds with 1 Year return up to 27%

10 Debt Mutual Funds with 1 Year return up to 27%


Debt mutual funds provide regular income to investors. Post DHFL crisis and further defaults from corporates, investors are scared to invest in debt mutual funds. Franklin Debt mutual funds fiasco added fuel to this in 2020. There are several debt mutual funds which are generating higher returns now. While some could be due to technical issues, some are genuinely generating higher returns. In this article we would provide Top 10 Debt Mutual Funds that gave up to 27% returns in 1 year? Did these mutual funds generate such returns genuinely or any hidden factors?

Also Read: 15 Best Mutual Funds to invest in 2021

What are debt mutual funds?

You can skip if you are already aware of debt funds.

Debt mutual funds in simple terms invest in government securities, corporate bonds and other debt instruments based on the investment objective. Debt funds would perform well during the specific market cycles. E.g. Gilt funds would deliver higher returns during fall in interest rates as the underlying fixed instruments of gilt funds are in good demand. One should invest in right debt mutual funds based on Macaulay duration concept to get higher returns.

List of 10 Debt Mutual Funds that gave 1 Year returns upto 27%

1) JM Low Duration Fund – 26.1%

2) Edelweiss Government Securities Fund – 11.7%

3) Axis Gilt Fund – 11.5%

4) BHARAT Bond FOF – April 2030 – 11.1%

5) ICICI Prudential Constant Maturity Gilt Fund – 11%

6) Nippon India Nivesh Lakshya Fund – 10.7%

7) Kotak Gilt Investment Provident Fund and Trust Plan – 10.6%

8) Kotak Gilt Investment – 10.6%

9) DSP Government Securities Fund – 10.4%

10) ICICI Prudential Gilt Fund – 10.4%

10 Debt Mutual Funds that gave 1 Year returns up to 27% – Detailed Analysis

1) JM Low Duration Fund – 26.1%

The scheme seeks to generate stable, long term returns with low risk strategy and capital appreciation/accretion besides preservation of capital through investments in Debt & Money Market instruments such that the Macaulay duration of the portfolio is between 6 months – 12 months.

10 Year Annualised Returns – 7.8%

5 Year Annualised Returns – 6.5%

3 Year Annualised Returns – 5.9%

1 Year Return – 26.1%

6 Months return – 1.7%

What has driven such high performance in 1 year?

This fund invests in government securities as well as corporate securities. If you observe the NAV has suddenly jumped in Apr-2020 from Rs 23.7 to Rs 28.4 (20%). But if you go deep dive,the NAV has fallen in May-2019 by Rs 4 on a NAV of Rs 26.6 (15%). This is owing to low rated debt instruments that it was carrying which includes DHFL etc. where it needs to reduce the value of such debt instruments.

Net summary is that the NAV got eroded in May-2019 and NAV got recovered in Apr-2020 (within 1 year). For me this is like a technical and hidden issue. Don’t go with 1 year return and expect higher returns in the future. Take the past performance and estimate your returns. Also consider that the fact that it was investing in low rated debt instruments which needs to be avoided by investors. Always invest in debt funds that invests in AAA rated debt instruments which are safer bet compared to other debt instruments.

2) Edelweiss Government Securities Fund – 11.7%

The investment objective is to generate income by investing primarily in money market and short term debt instruments.

10 Year Annualised Returns – NA

5 Year Annualised Returns – 9.4%

3 Year Annualised Returns – 9.8%

1 Year Return – 11.7%

6 Months return – 2.9%

What has driven such high performance in 1 year?

This fund invests 93% in government sovereign securities and balance it holds in cash. These GOI bonds interest rates are ranging majorly between 6.1% to 6.79%. Its minor portion generates at 5.77%. While the returns from such debt fund is high at 11.7% in the last 1 year, one can expect 6% to 7% annualized returns going forward.

This is one of the consistent performing debt mutual fund to invest.

3) Axis Gilt Fund – 11.5%

The Scheme will aim to generate credit risk-free returns through investments in sovereign securities issued by the Central Government and/or State Government.

9 Year Annualised Returns – 7.8%

5 Year Annualised Returns – 8.8%

3 Year Annualised Returns – 10.4%

1 Year Return – 11.5%

6 Months return – 2.7%

What has driven such high performance in 1 year?

Even this fund invests majorly in government sovereign securities (93%) and holds the balance in cash. These GOI securities interest rates are ranging majorly between 5.77% to 7.17%. Its minor portion generates between 6% to 8%. While the returns from such debt fund is high at 11.5% in the last 1 year, one can expect 6% to 8% annualized returns going forward.

This is one of the consistent performing debt mutual fund to invest.

4) BHARAT Bond FOF – April 2030 – 11.1%

The scheme seeks to generate returns by investing in units of BHARAT Bond ETF – April 2030.

9 Year Annualised Returns – NA

5 Year Annualised Returns – NA

3 Year Annualised Returns – NA

1 Year Return – 11.1%

6 Months return – 0.8%

What has driven such high performance in 1 year?

This fund invests in the units of the Bharat Bond Fund ETF which invests in long duration government bonds. These GOI debt instruments returns are expected to be 5% to 6%. While the returns from such debt fund is high at 11.1% in the last 1 year (due to demand in underlying debt bond instruments), one can expect 5% to 6% annualized returns going forward.

You may avoid such funds and invest in other debt instruments that can provide high returns.

5) ICICI Prudential Constant Maturity Gilt Fund – 11%

The scheme seeks to generate income primarily by investing in portfolio of Government Securities while maintaining Macaulay duration of the portfolio around 10 years.

10 Year Annualised Returns – NA

5 Year Annualised Returns – 10.3%

3 Year Annualised Returns – 11.9%

1 Year Return – 10.9%

6 Months return – 1.5%

What has driven such high performance in 1 year?

This gilt fund invests in government securities which has a maturity period of 10 years or more. These GOI securities, interest rates are ranging majorly between 5.85% to 7.6%. Its minor portion generates 6.2%. While the returns from such debt fund is high at 10.9% in the last 1 year, one can expect 6% to 9% annualized returns going forward.

This is one of the best gilt fund to invest in 2021.

6) Nippon India Nivesh Lakshya Fund – 10.7%

The scheme seeks to generate optimal returns consistent with moderate levels of risk.This income may be complemented by capital appreciation of the portfolio.

10 Year Annualised Returns – NA

5 Year Annualised Returns – NA

3 Year Annualised Returns – NA

1 Year Return – 10.6%

6 Months return – 0.07%

What has driven such high performance in 1 year?

This fund was launched only a couple of years back. This is a long duration debt fund that invests in debt instruments which are maturing over 7 years.The aim is to get higher returns compared to bank FDs. Chances of capital loss are very low. Currently it invests majorly in Govt securities.

These GOI securities, interest rates are ranging majorly between 7.06% to 8.17%. While the returns from such debt fund is high at 10.6% in the last 1 year, one can expect 7% to 9% annualized returns going forward.

Since this is a long term debt fund, one can avoid such funds and invest in a combination of some portion in equity + balance in short term debt funds which can provide higher returns.

7) Kotak Gilt Investment Provident Fund and Trust Plan – 10.6%

The scheme seeks to generate risk-free returns through investments in sovereign securities. The savings plan (D) will provide regular dividend payouts. A portion of the fund will be invested in inter bank money market in order to meet the liquidity requirement.

10 Year Annualised Returns – 8.9%

5 Year Annualised Returns – 9.3%

3 Year Annualised Returns – 10%

1 Year Return – 10.6%

6 Months return – 1.7%

What has driven such high performance in 1 year?

Since this is gilt fund, it invests in government sovereign securities. These GOI securities, interest rates are ranging majorly between 5.77% to 6.89%. Its minor portion generates at 9% to 12%. While the returns from such debt fund is high at 10.6% in the last 1 year, one can expect 6% to 8% annualized returns going forward.

This is one of the consistent performing gilt fund to invest.

8) Kotak Gilt Investment – 10.6%

The scheme seeks to generate risk-free returns through investments in sovereign securities. The savings plan (D) will provide regular dividend payouts. A portion of the fund will be invested in inter bank money market in order to meet the liquidity requirement.

10 Year Annualised Returns – 8.9%

5 Year Annualised Returns – 9.3%

3 Year Annualised Returns – 10%

1 Year Return – 10.6%

6 Months return – 1.7%

What has driven such high performance in 1 year?

Since this is gilt fund, it invests in government sovereign securities. These GOI securities, interest rates are ranging majorly between 5.77% to 6.89%. Its minor portion generates between 9% to 12%. While the returns from such debt fund is high at 10.6% in the last 1 year, one can expect 6% to 8% annualized returns going forward.

This is one of the consistent performing gilt mutual fund to invest.

9) DSP Government Securities Fund – 10.4%

The scheme seeks to generate returns through investments in central government securities with maturity between one and 30 years.

10 Year Annualised Returns – 8.2%

5 Year Annualised Returns – 9.5%

3 Year Annualised Returns – 10.9%

1 Year Return – 10.4%

6 Months return – 1.2%

What has driven such high performance in 1 year?

Since this is gilt fund, it invests in government sovereign securities. These GOI securities, interest rates are ranging majorly between 6.22% to 7.26%. Its minor portion generates between 5.77% to 5.85%. While the returns from such debt fund is high at 10.4% in the last 1 year, one can expect 6.5% to 8% annualized returns going forward.

This is one of the consistent performing gilt mutual fund to invest in 2021.

Also Read: Consistent Performing Largecap stocks to invest in 2021

10) ICICI Prudential Gilt Fund – 10.4%

The scheme seeks to generate steady and consistent return from a basket of government securities across various maturities through proactive fund management aimed at controlling Interest rate risk. The investment plan will invest in gilt including T-Bills with medium to long maturity, with average maturity of the portfolio normally not exceeding 8 years.

10 Year Annualised Returns – 8.9%

5 Year Annualised Returns – 10.1%

3 Year Annualised Returns – 10.2%

1 Year Return – 10.4%

6 Months return – 1.29%

What has driven such high performance in 1 year?

Since this is a gilt fund, it invests in government sovereign securities. These GOI securities, interest rates are ranging majorly between 5.77% to 6.22%. Its minor investment portion generates between 7% to 8.4%. While the returns from such debt fund is high at 10.4% in the last 1 year, one can expect 6% to 8% annualized returns going forward.

This is one of the consistent performing gilt mutual fund to invest.

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Suresh KP

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