Article

5 Debt Fund

04 Oct 2018 Jitender Singh

Debt funds invest in fixed income securities like Government bond, Corporate bond and money market securities with different maturities. Debt funds are categorized as Gilt Funds, Income funds, Liquid funds, MIP, etc.

Debt funds are appropriate for investors who are risk aversive and are seeking regular income. Some of the advantages are discussed below:

  • Less volatile than equity market: The returns of debt funds are less volatile than equity funds since debt mutual funds invest in debt securities, where interest income is regular and prices are relatively stable than equity investments.
  • More liquid than fixed deposit: Investors can invest and withdraw, fully or partially, at any time, unlike fixed deposits.
  • More investment flexibility than fixed deposits: Investors can choose to switch to other schemes in the same fund house, like from a debt fund to an equity fund,
  • Taxation Benefits: Debt funds are more tax efficient than other fixed income instruments. After 3 years of investment, investors have to pay 20% tax after indexation on long-term capital gains. Indexation is adjusting investments for inflation for holding period.

Below are the top five debt funds which investors can add in their portfolios.

Scheme Name

AUM (Rs Cr)

YTM (%)

AM (Y)

1Y (%)

3Y (%)

5Y (%)

Aditya Birla SL Savings Fund(G)

18,353

8.0

0.5

6.6

7.9

8.6

Franklin India ST Income Plan(G)

11,338

10.7

2.7

6.0

8.0

9.1

Franklin India Ultra Short Bond Fund-Super Inst(G)

15,336

8.5

0.7

7.6

8.7

9.2

HDFC Short Term Debt Fund(G)

9,441

8.5

1.4

5.3

7.3

8.4

UTI Credit Risk Fund(G)

5,402

9.7

1.8

4.5

7.5

8.8

1 year returns are absolute; 3 years and 5 year returns are CAGR.
AUM as on August 2018, Returns are as on October 01, 2018
Source: ACE MF

Aditya Birla SL Savings Fund

  • Aditya Birla SL Saving Fund is an ultra-short term fund, which primarily invests in short term corporate bonds with Macaulay duration of the portfolio between 3 months and 6 months.
  • As on August 31, 2018, the fund had invested ~74% in AAA & equivalent debt securities and ~21% in AA & equivalent debt securities.

Franklin India ST Income Plan

  • Franklin India ST Income Plan is a short term fund, which primarily invests in short term corporate bonds with a focus on higher interest income.
  • Investors can invest in the fund for an investment horizon of 1 year or more.
  • As on August 31, 2018, the fund had invested ~37% in AA & equivalent debt securities and ~56% in A & equivalent debt securities.

Franklin India Ultra Short Bond Fund – Super Institution

  • The fund primarily invests in short term corporate bonds and money market instruments with a focus on higher interest income.
  • Investors can invest in the fund for an investment horizon of 1 month or more.
  • As on August 31, 2018, the fund had invested ~52% in AAA & equivalent debt securities, ~24% in AA & equivalent debt securities and ~19% in A & equivalent debt securities.

HDFC Short Term Debt Fund

  • HDFC Short Term Debt Fund predominantly invests in AAA/AA rated corporate bonds maintaining Macaulay duration of the portfolio between 1 year to 3 years.
  • The fund is well poised to earn good accrual from good quality papers and also benefit from fall in interest rates.
  • As on August 31, 2018, the fund had invested ~89% in AAA & equivalent debt securities and ~5% in AA & equivalent debt securities.

UTI Credit Risk Fund

  • It is a credit risk fund, which predominantly invests in AAA/AA rated corporate bonds thereby maintaining the overall quality.
  • The fund aims to generate reasonable interest income and capital appreciation by investing in high income accruing securities with short term maturity. Capital appreciation is generated through actively managing the credit & duration risk with focus on rating migrations.
  • As on August 31, 2018, the fund had invested ~14% in AAA & equivalent debt securities, ~70% in AA & equivalent debt securities and ~6% in A & equivalent debt securities.

Research Disclaimer 

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5 Debt Fund

04 Oct 2018 Jitender Singh

Debt funds invest in fixed income securities like Government bond, Corporate bond and money market securities with different maturities. Debt funds are categorized as Gilt Funds, Income funds, Liquid funds, MIP, etc.

Debt funds are appropriate for investors who are risk aversive and are seeking regular income. Some of the advantages are discussed below:

  • Less volatile than equity market: The returns of debt funds are less volatile than equity funds since debt mutual funds invest in debt securities, where interest income is regular and prices are relatively stable than equity investments.
  • More liquid than fixed deposit: Investors can invest and withdraw, fully or partially, at any time, unlike fixed deposits.
  • More investment flexibility than fixed deposits: Investors can choose to switch to other schemes in the same fund house, like from a debt fund to an equity fund,
  • Taxation Benefits: Debt funds are more tax efficient than other fixed income instruments. After 3 years of investment, investors have to pay 20% tax after indexation on long-term capital gains. Indexation is adjusting investments for inflation for holding period.

Below are the top five debt funds which investors can add in their portfolios.

Scheme Name

AUM (Rs Cr)

YTM (%)

AM (Y)

1Y (%)

3Y (%)

5Y (%)

Aditya Birla SL Savings Fund(G)

18,353

8.0

0.5

6.6

7.9

8.6

Franklin India ST Income Plan(G)

11,338

10.7

2.7

6.0

8.0

9.1

Franklin India Ultra Short Bond Fund-Super Inst(G)

15,336

8.5

0.7

7.6

8.7

9.2

HDFC Short Term Debt Fund(G)

9,441

8.5

1.4

5.3

7.3

8.4

UTI Credit Risk Fund(G)

5,402

9.7

1.8

4.5

7.5

8.8

1 year returns are absolute; 3 years and 5 year returns are CAGR.
AUM as on August 2018, Returns are as on October 01, 2018
Source: ACE MF

Aditya Birla SL Savings Fund

  • Aditya Birla SL Saving Fund is an ultra-short term fund, which primarily invests in short term corporate bonds with Macaulay duration of the portfolio between 3 months and 6 months.
  • As on August 31, 2018, the fund had invested ~74% in AAA & equivalent debt securities and ~21% in AA & equivalent debt securities.

Franklin India ST Income Plan

  • Franklin India ST Income Plan is a short term fund, which primarily invests in short term corporate bonds with a focus on higher interest income.
  • Investors can invest in the fund for an investment horizon of 1 year or more.
  • As on August 31, 2018, the fund had invested ~37% in AA & equivalent debt securities and ~56% in A & equivalent debt securities.

Franklin India Ultra Short Bond Fund – Super Institution

  • The fund primarily invests in short term corporate bonds and money market instruments with a focus on higher interest income.
  • Investors can invest in the fund for an investment horizon of 1 month or more.
  • As on August 31, 2018, the fund had invested ~52% in AAA & equivalent debt securities, ~24% in AA & equivalent debt securities and ~19% in A & equivalent debt securities.

HDFC Short Term Debt Fund

  • HDFC Short Term Debt Fund predominantly invests in AAA/AA rated corporate bonds maintaining Macaulay duration of the portfolio between 1 year to 3 years.
  • The fund is well poised to earn good accrual from good quality papers and also benefit from fall in interest rates.
  • As on August 31, 2018, the fund had invested ~89% in AAA & equivalent debt securities and ~5% in AA & equivalent debt securities.

UTI Credit Risk Fund

  • It is a credit risk fund, which predominantly invests in AAA/AA rated corporate bonds thereby maintaining the overall quality.
  • The fund aims to generate reasonable interest income and capital appreciation by investing in high income accruing securities with short term maturity. Capital appreciation is generated through actively managing the credit & duration risk with focus on rating migrations.
  • As on August 31, 2018, the fund had invested ~14% in AAA & equivalent debt securities, ~70% in AA & equivalent debt securities and ~6% in A & equivalent debt securities.

Research Disclaimer