These 5 Debt Mutual Funds generated over 7% returns every year consistently in last 10 years
Investors are scared to invest in debt mutual funds post Franklin Debt funds fiasco. Some mutual funds generate high returns in a year and low returns in another year. Annualised returns sometimes mislead investors. If an investor wants to get regular income that beats FDs (every year) and inflation, this is an appealing task. However, do you know that there are 5 debt mutual fund schemes that have beaten FD and generated consistent returns every year in the last 8-10 years? In this article, I would provide the analysis of about 5 debt funds that gave 7%+ returns every year consistently in the last 10 years.
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What is debt mutual funds?
Debt mutual fund invests in fixed income options and aim to provide regular income to investors. There are several categories of debt funds, e.g., ultra-short-term funds, short term funds, medium term debt funds, long term debt funds, gilt funds, PSU debt funds etc., Depending on the investment objective, investors would invest in these funds.
Why are investors scared about debt funds?
Debt funds invest in fixed income options and we all know interest rate risks. We could view only falling interest rates in coming years. But beyond this, there are a few reasons why investors are scared to invest in debt funds these days.
One is about Franklin mutual funds fiasco where investors money is locked. AMC is releasing the money in staggered manner. Investors do not want to end-up in such situation and hence wanted to avoid them.
Second main reason is debt funds fund are investing in corporate debt papers where there is default risk. Due to this, there could be drop in NAV and several mutual fund schemes shown negative returns too.
Other main reason is debt funds do not offer guaranteed returns. In a year, they may generate high returns of 10% and in another year, they might generate low returns of 3%.
How have we filtered consistent performing debt mutual funds?
Here is how we analysed and filtered these debt funds. Calendar year referred here is from 1st January to 31st December. The returns pertains to calendar year.
1) There are over 350+ debt mutual funds in India as of 30th September, 2021. We took only regular funds for this analysis (as we do not have operating history for direct plans beyond 7 years. We have also excluded Franklin debt funds which created fiasco in 2020.
2) Only 115 debt funds have generated over 7% returns in 2020 calendar year.
3) Only 96 debt funds have generated over 7% yearly returns in 2019 and 2020 calendar years.
4) Only 25 debt funds have generated over 7% yearly returns in 2018, 2019 and in 2020 calendar years.
5) Only 5 debt funds have generated over 7% yearly returns in 2017, 2018, 2019 and in 2020 calendar years.
6) Surprisingly these 5 debt mutual funds were generating over 7% yearly returns consistently from 2011 onwards.
The returns are for regular plans. For direct plans, the returns would be higher by 0.5% to 1.5% as there would not be any agent commissions.
List of Consistent Performing Debt Funds in the last 10 years
Here is the list which gave over 7% returns every year.
#1 – Axis Banking and PSU Debt Fund
#2 – ICICI Prudential Savings Fund
#3 – Kotak Low Duration Fund
#4 – Baroda Short Term Debt Fund
#5 – Aditya Birla Life Savings Fund
5 Consistent Performing Debt Funds in last 10 years – Detailed View
Let me provide more details on these funds.
#1 – Axis Banking and PSU Debt Fund
Scheme Objective
The scheme aims to generate stable returns by investing predominantly in debt and money market instruments issued by banks, Public Sector Units & Public Financial Institutions.
This scheme majorly invests in SOV / AAA rated debt instruments.
Scheme Performance
This fund was launched in 2012 and is consistently generating over 7.2% returns every year in the last 8 years.
Highest Return – 10.5%
Lowest Return – 7.2%
Average yearly return – 8.7%
Scheme Annual Returns
| Year | Return % |
|---|---|
| 2013 | 8.7 |
| 2014 | 9.3 |
| 2015 | 8.5 |
| 2016 | 8.4 |
| 2017 | 7.2 |
| 2018 | 7.5 |
| 2019 | 10.5 |
| 2020 | 9.6 |
This is a consistent performing debt mutual fund in the last 8 years from Banking and PSU Debt segment. However, one should note that in the last 1 year in 2021, it generated only 5% returns as of now. Downtrend in interest rates is one of the major concerns now.
#2 – ICICI Prudential Savings Fund
Scheme Objective
The scheme seeks to generate income through investments in a range of debt and money market instruments of various maturities with a view to maximizing income while maintaining the optimum balance of yield, safety and liquidity.
This scheme invests 75% of its portfolio in SOV / AAA rated debt instruments, another 18% in AA / A+ rated instruments and holds balance in cash.
Scheme Performance
This fund was launched in 2002 and is consistently generating over 7.1% returns every year in the last 10 years.
Highest Return – 9.6%
Lowest Return – 7.1%
Average yearly return – 8.75%
Scheme Annual Returns
| Year | Return % |
|---|---|
| 2011 | 9.2 |
| 2012 | 9.6 |
| 2013 | 9.6 |
| 2014 | 9.5 |
| 2015 | 8.8 |
| 2016 | 9.1 |
| 2017 | 7.1 |
| 2018 | 7.2 |
| 2019 | 8.8 |
| 2020 | 8.6 |
This is a consistent performing debt mutual fund in the last 10 years from Low Duration Debt Fund Segment. However, one should note that in the last 1 year in 2021, it generated only 5% returns as of now. Downtrend in interest rates is one of the major concerns now.
#3 – Kotak Low Duration Fund
Scheme Objective
The scheme seeks to generate income through investment in low duration debt and money market securities.
This scheme invests 66% of its portfolio in SOV / AAA rated debt instruments, another 30% in AA / A+ rated instruments and holds balance in cash.
Scheme Performance
This fund was launched in 2008 and is consistently generating over 7% returns every year in the last 10 years.
Highest Return – 10.1%
Lowest Return – 7.1%
Average yearly return – 8.5%
Scheme Annual Returns
| Year | Return % |
|---|---|
| 2011 | 9.8 |
| 2012 | 10.1 |
| 2013 | 7.1 |
| 2014 | 9.5 |
| 2015 | 9.3 |
| 2016 | 8.9 |
| 2017 | 7.1 |
| 2018 | 7.3 |
| 2019 | 8.3 |
| 2020 | 7.9 |
This is also consistent performing debt mutual fund in the last 10 years from Low Duration Debt Fund Segment. However, one should note that in the last 1 year in 2021, it generated only 4% returns as of now.
#4 – Baroda Short Term Debt Fund
Scheme Objective
The investment objective of the Scheme is to generate income from a portfolio constituted of short-term debt and money market securities.
This scheme invests 75% of its portfolio in SOV / AAA rated debt instruments, another 10% in AA / A+ rated instruments and holds balance in cash.
Scheme Performance
This fund was launched in 2010 and is consistently generating over 7.1% returns every year in the last 10 years.
Highest Return – 9.5%
Lowest Return – 7.1%
Average yearly return – 8.4%
Scheme Annual Returns
| Year | Return % |
|---|---|
| 2011 | 8.3 |
| 2012 | 9.1 |
| 2013 | 8.0 |
| 2014 | 9.5 |
| 2015 | 8.6 |
| 2016 | 9.5 |
| 2017 | 7.6 |
| 2018 | 7.1 |
| 2019 | 8.8 |
| 2020 | 7.5 |
This is consistent performing debt mutual fund in the last 10 years from Short Duration Debt Fund Segment. However, one should note that in the last 1 year in 2021, it generated only 4% returns as of now. Downtrend in interest rates is one of the major concerns now.
#5 – Aditya Birla Life Savings Fund
Scheme Objective
The scheme aims to generate regular income from a portfolio of debt and money market instruments, cash and cash equivalents.
This scheme invests 53% of its portfolio in SOV / AAA rated debt instruments, another 42% in AA / A+ rated instruments and holds balance in cash.
Scheme Performance
This fund was launched in 2001 and is consistently generating over 7.1% returns every year in the last 10 years.
Highest Return – 9.7%
Lowest Return – 7.1%
Average yearly return – 8.7%
Scheme Annual Returns
| Year | Return % |
|---|---|
| 2011 | 9.2 |
| 2012 | 9.7 |
| 2013 | 9.6 |
| 2014 | 9.7 |
| 2015 | 8.9 |
| 2016 | 9.2 |
| 2017 | 7.2 |
| 2018 | 7.6 |
| 2019 | 8.5 |
| 2020 | 7.1 |
However, one should note that in the last 1 year in 2021, it generated 4% returns as of now. Downtrend in interest rates is one of the major concerns now.
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Who can invest in these debt mutual funds?
Mutual Funds do not offer guaranteed returns. There is no guarantee that these funds would generate such consistent returns in the future too.
1) Investors looking for consistent returns every year irrespective of market conditions can invest in these funds.
2) Investors who are looking for returns that can beat bank fixed deposits can invest in these funds.
3) Investors who are looking for regular income / fixed income can invest in these funds and do systematic withdrawal plans (SWP) to get regular payouts.
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Hi Suresh,
Currently I am holding my 90% savings in below debt funds for a goal which is 2-3 years from now.
ICICI ultrashort duration fund
HDFC ultrashort duration fund
ICICI liquid fund
UTI overnight fund.
Apart from these Rs. 5000 each SIP in below funds for long term and I am OK with risk.
PGIM Midcap fund
Quant Midcap fund
Canara robeco small cap fund
Quant small cap fund
Please review and suggest if any changes required in this portfolio.
Kuldeep, Regd Short term funds, keep your expectation at 6% to 6.5%. Regd liquid or overnight funds, you can expect 4.5% to 5.5%
Regd requity funds, you have invested in 2 midcap funds and 2 smallcap funds. These are high risk. Diversify your portfolio by adding 1 largecap, 1 flexicap and 1 midcap and 1 smallcap fund.
Suresh Sir,
I have an important question. Whether NCD or FD (getting a reasonable interest of about 8 percent) should one go for a long tenure or a short one? In other words, do you foresee the interest rates increasing in a couple of years? Because if it is not, one can invest for long term like 5 years.
Please reply
Sukanya
Interest rates in coming years are expected to come down. FDs are little safer to invest, hence you can always lock them for medium to long term. In NCDs one can look upto 5 years tenure. Beyond this it could be riskier as we do not know how such companies would turn in long term.
Great analysis Suresh! In these challenging times, we have to clutch at any straw. I think low risk investors have to look at these funds.
Two questions :
1)What is the safety of the principal amount?
2) What are the risks of default of payments?
Hello Varinder, Thanks.
1) Debt funds still consists risks as they investment corporate debt instruments / fixed income options.
2) Already indicated in Point no 1. Your capital can go down in short term if there are defaults by the underlying investment options. Investing in debt funds that has high components of AA rated debt instruments can reduce the risk.
As most of these funds have given returns of only 4-5% this year which funds retirees should look for?
Its 9 months only as of now. Hopefully they should catch-up, otherwise these as low as 6%
Sir, I was told that for senior citizens there is no exit load in Debt funds. Please clarify.
There are no specific rules for senior citizens in mutual fund schemes. The exit load would be indicated in the scheme information document (SID) and is same for regular investors and senior citizens.