Debt Funds invest primarily in debt instruments to provide the investor with regular interest income, liquidity, and good capital protection. Here is a list of five of the best Debt Funds on the market.
Minimum Investment: Rs. 5,000
Exit Load: 0.25% for redemption within 15 days
Risk Grade: Average
Return Grade: High
Gilts are bonds issued by the Government of India and since they are issued by the government they are considered low-risk instruments. The Reliance Gilt Securities Fund is an open-ended debt fund that primarily invests in Gilt securities to provide investors with a reasonable regular income while providing high capital protection. The fund was started in August 2008 and has outperformed both its benchmark and category on a number of occasions. The fund saw its best performance between February 2014 and February 2015.
The Reliance Gilt Securities Fund invests in Sovereign Debt Instruments and Cash equivalent instruments to provide investors with high liquidity and low-risk on their investments. Through active management, the fund has been able to achieve an Alpha of 0.90, which is considerably higher than the category average of -0.39. The fund also carries a Beta of 0.87, which is marginally higher than the category average of 0.85. This demonstrates the fund’s ability to produce higher returns while taking on marginally higher risks. The trailing returns of the fund against its category have been provided in the table below.
| Trailing Returns (%) | 3-M | 6-M | 1-Y | 3-Y | 5-Y |
| Fund | 3.34 | 5.89 | 9.8 | 9.53 | 10.28 |
| Category | 3.08 | 5.3 | 8.33 | 8.13 | 9.04 |
ICICI Prudential All Seasons Bond Fund
Minimum Investment: Rs. 5,000
Exit Load:0.25% for redemption within 30 days
Risk Grade: Average
Return Grade: Above Average
The ICICI Prudential All Seasons Bond Fund invests in a range on debt and money market instruments with varying maturity periods to provide investors with optimum returns on investments, high liquidity, and good capital protection. Since this fund invests in a spectrum of debt instruments across maturity periods it is actively managed. The fund was launched in January 2013 and has almost consistently outperformed its benchmark and category, seeing its best performance between February 2014 and February 2015. For its long-term debt component, the fund takes exposure to AA-rated securities in the form of Debentures to provide a regular interest income. For the short-term debt component, it takes exposure to Zero Coupon Bonds and Commercial Paper with a Credit Rating AAA or above. Overall this fund takes exposure to high-quality credit that has high sensitivity to interest rate changes. The fund also has a relatively low Expense Ratio of 0.60% which is quite reassuring. The fund carries an Alpha of 2.81, which is considerably higher than the category average of 0.79. The fund’s Beta is 1.71 which is slightly higher than the category average, this demonstrates the fund’s ability to generate higher than expected returns for taking on marginally higher risks. The trailing returns of the fund against its category have been provided in the table below.
| Trailing Returns (%) | 3-M | 6-M | 1-Y | 3-Y | 5-Y |
| Fund | 2.47 | 3.79 | 7.45 | 10.57 | 11.02 |
| Category | 2.49 | 4.26 | 7.13 | 8.35 | 9.18 |
Franklin India Ultra Short Bond Fund
Minimum Investment: Rs. 10,000
Exit Load: 0
Risk Grade: Below Average
Return Grade: High
The Franklin India Ultra Short Bond Fund seeks to provide its investors with a regular income and high liquidity through a mix of short-term debt and other money market instruments. The fund was launched in December 2007 and is an open-ended, actively managed debt fund that invests in medium quality credit that has low sensitivity to interest rate changes. Even though the fund invests heavily in A and below rated debt securities it mitigates credit risk and interest rate risk by taking on only short-term debt. The fund also invests in Corporate Bonds, Certificate of Deposits and, Commercial Paper to keep the overall risk grade of the fund low. This fund has consistently outperformed its benchmark and category since its launch, seeing its best performance between July 2013 and July 2014. The fund carries an Alpha of 5.60 which is higher than the category average Alpha of 4.11 and a Beta of 1.57 which is lower than the category average of 1.72. This demonstrates the fund’s ability to produce higher than expected returns while mitigating risk. The fund also carries a below average Expense Ratio of 0.42%, which is a sight of efficient management. The trailing returns of the fund against its category have been provided in the table below.
| Trailing Returns (%) | 3-M | 6-M | 1-Y | 3-Y | 5-Y |
| Fund | 2.73 | 4.92 | 9.16 | 8.97 | 9.29 |
| Category | 1.69 | 2.82 | 6.15 | 6.9 | 7.65 |
Minimum Investment: Rs. 5,000
Exit Load: 0
Risk Grade: –
Return Grade: –
The SBI Overnight Fund is an open-ended debt fund that seeks to provide investors with regular income through investments in overnight securities. The fund was launched in September 2002 and has consistently outperformed its benchmark and category since 2007. As this is an overnight fund that invests almost exclusively in cash and cash equivalents on an overnight basis, its portfolio is highly dynamic and is, therefore, actively managed. The fund mitigates risk by taking very short term exposure to any particular security. The fund carries an Alpa of 0.96, which is lower than the category average of 1.52, but it carries a Beta of 0.57 which is lower than the category average of 0.87. This demonstrates the fund’s willingness to part with marginally higher returns to provide investors with greater capital protection and stability. The fund carries a low Expense Ratio of 0.16%, which demonstrates good efficiencies in management. The trailing returns of the fund against its category have been provided in the table below.
| Trailing Returns (%) | 3-M | 6-M | 1-Y | 3-Y | 5-Y |
| Fund | 1.58 | 3.17 | 6.32 | 6.21 | 6.98 |
| Category | 1.54 | 3.07 | 6.02 | 6.03 | 6.74 |
Minimum Investment: Rs. 5,000
Exit Load: 0
Risk Grade: Below Average
Return Grade: Above Average
The HDFC Short Term Debt Fund is a short-term debt fund that seeks to provide investors with regular income, high liquidity and, capital protection through investments in short and medium-term debt and other money market instruments. The fund was started in June 2010 and has consistently outperformed its benchmark and category, seeing its best performance between August 2013 and August 2014. The fund invests in AAA-rated securities in the form of debentures for its long-term investments and in Commercial Paper and other money market instruments for its short-term investments. The HDFC Short Term Debt Fund carries an Alpha of 6.70, which is lower than the category average Alpha of 8.14, but it also carries a significantly lower Beta of 2.71 when compared to the category average Beta of 3.62. This demonstrates the fund’s conservative investment strategy, taking on less right for lower, yet stable returns. The fund carries an Expense Ratio of 0,40% which is at the lower end of the spectrum for such a fund. The trailing returns of the fund against its category have been provided in the table below.Also check SEBI website to compare mutual funds.
| Trailing Returns (%) | 3-M | 6-M | 1-Y | 3-Y | 5-Y |
| Fund | 2.3 | 3.94 | 7.35 | 7.67 | 8.37 |
| Category | 2.31 | 3.48 | 6.5 | 7.22 | 7.79 |
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