General, Investment, Mutual Funds, Stock Market

Best Debt Mutual Funds Available in the market

best-debt-mutual-funds-available-in-the-market

Debt mutual funds provides a large variety of products that cater to a wide spectrum of investment needs, risk profiles and interest rate scenarios. While bank fixed deposit is almost an automatic choice for most retail investors as far as short term or medium term low risk investment is concerned, over the past one year, fixed deposits interest rates have come down by 1%, making it challenging for investors who rely on fixed deposit interest as a source of income. On the other hand, if you look at the performance of debt mutual funds, you will see that across the entire range of investment tenures, mutual funds in different debt categories have given significantly higher post tax returns than the fixed deposits. Fixed deposits are risk free investments with assured returns, while debt funds have an element of risk associated with it. However, it is important to understand that, risks involved in debt funds are very different from risks involved in equity funds.

Top 5 Short Term Income Funds

Our selection of the short term income funds is based on the most recent CRISIL ranking. CRISIL ranks short term debt funds based on several parameters like annualized returns, volatility, asset quality, company concentration, modified duration, liquidity and exposure to sensitive sector.

HDFC Medium Term Opportunities Fund: The scheme was launched in June 2010 and has Rs.4,082 crores of Assets under Management. The expense ratio of the fund is 0.28%. CRISIL has assigned Rank 2 for HDFC Medium Term Opportunities Fund. Over a one to three years investment period the fund gave in excess of 9% trailing annualized returns. The average maturity of the fund’s portfolio is 1.5 years and the yield to maturity (YTM) is 8.03%. In our view, for short term income funds, YTM is a better indicator of expected returns than historical returns. As discussed earlier a YTM of 8.03% and an average maturity of 1.5 years imply that, if you hold units of this scheme for 1.5 years, assuming no changes to fund portfolio, you can get a return of 8.03% before expenses are deducted. However, you should note that YTM is only an indicator, because there will be changes to fund portfolio. For example, there may be bonds maturing in fund portfolio during the investment period, which gets reinvested at different yields. The asset quality of the scheme is excellent with 88% of the scheme portfolio securities rated AAA. The scheme has an exit load of 1% for redemptions within 365 days.

Birla SL Short Term Fund: The scheme was launched in March 1997 and has RS.9,557 crores of Assets under Management. The expense ratio of the fund is 0.28%. CRISIL has given Rank 1 for Birla SL Short Term Fund. One year trailing annualized return of the scheme is nearly 9%, while the three year trailing annualized return is 9.4%. The average maturity of the fund’s portfolio is 2.2 years and the yield to maturity (YTM) is 7.93%. The asset quality of the scheme is excellent with 86% of the scheme portfolio securities rated AAA. The scheme has no exit load.

Birla SL Treasury Optimizer Plan: The scheme was launched in April 2008 and has Rs.5,084 crores of Assets under Management. The expense ratio of the fund is 0.37%. CRISIL has assigned Rank 2 for Birla SL Treasury Optimizer Plan. One year trailing annualized return of the scheme is nearly 8.9%, while the three year trailing annualized return is 10.2%. The average maturity of the fund’s portfolio is 5 years and the yield to maturity (YTM) is 8.1%. Interest rate risk is limited. The asset quality of the scheme is excellent with 87% of the scheme portfolio securities rated AAA. The scheme has no exit load.

L&T Short Term Opportunities Fund: The scheme was launched in April 2008 and has Rs.1,681 crores of Assets under Management. The expense ratio of the fund at 0.8% is slightly on the higher side as compared to the other top short term income funds. CRISIL has assigned Rank 1 for L&T Short Term Opportunities Fund. One year trailing annualized return of the scheme is nearly 8.2%, while the three year trailing annualized return is 8.9%. The average maturity of the fund’s portfolio is 2 years and the yield to maturity (YTM) is 8.1. The asset quality of the scheme is excellent with 96% of the scheme portfolio securities rated AAA. The scheme has an exit load of 0.5% for redemptions with 30 days.

IDFC Super Saver Income Fund – Medium Term: The scheme was launched in April 2008 and has Rs.1,681 crores of Assets under Management. The expense ratio of the fund is on the higher side at 1.2% on a relative basis. CRISIL has given Rank 2 for IDFC Super Saver Income Fund – Medium Term. One year trailing annualized return of the scheme is nearly 8.2%, while the three year trailing annualized return is 8.7%. The average maturity of the fund’s portfolio is 4.1 years and the yield to maturity (YTM) is 8.15. The asset quality of the scheme is excellent with 86% of the scheme portfolio securities rated AAA. The scheme has an exit load of 0.5% for redemptions with 90 days.

 

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CA Rachit Jain

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