Best Debt Funds to Invest in 2024 through SIP

Debt funds have now emerged as one among the most preferred investment tools for those who look forward to making a relatively stable return with relatively less risk. These funds are useful to those who want to maintain an investment portfolio and acquire a financial goal without risking equity markets. As a brief, this blog gives a comprehensive knowledge on the concept of debt funds along with a outlook on the benefits of it, and about the kind of investors who should invest in debt funds. We will also look at some of the well-known debt fund plans like Aditya Birla Sun Life Medium Term Plan, DSP Credit Risk Fund etc providing with concrete plans to invest.

What Are Debt Funds

Debt funds refer to mutual funds, which invest their money mostly in fixed income instrument like bonds, debentures, treasury bills and money market instruments. These funds seek to deliver interest income to the investors as well as guarantee the capital amount.

How They Work

Portfolio managers decide on the proportion to invest in different debt securities with regard to the interest rate, credit risk and the duration of the fund.

• Interest income from the underlying securities.
• Capital appreciation when bonds are sold at a profit.

Top Performing Debt Funds Through SIP

Fund Name	NAV (₹)	Fund Size (₹ Cr)	Expense Ratio (%)	1-Year SIP Return (%)	3-Year SIP Return (%)	5-Year SIP Return (%)
Aditya Birla Sun Life Medium Term Plan	36.8242	1968.18	1.58	11.53	11.21	11.84
DSP Credit Risk Fund	41.6092	188.05	1.14	7.72	11.08	9.50
BOI Credit Risk Fund	11.7458	114.7	1.38	5.73	17.59	24.07
Aditya Birla Sun Life Credit Risk	20.3668	936.0	1.54	14.15	9.87	8.81
UTI Dynamic Bond Fund	29.4448	560.42	1.54	8.14	7.81	8.64
ICICI Prudential Credit Risk	30.1242	6387.09	1.41	8.56	7.72	7.30
Baroda BNP Paribas Credit Risk	21.0688	164.92	1.60	8.43	7.49	8.65
SBI Credit Risk Fund	43.2655	2311.36	1.55	8.02	7.58	7.01
Axis Floater Fund	1228.5035	233.61	0.53	8.91	7.83	N/A
HDFC Floating Rate Direct Fund	47.5446	15003.71	0.49	8.69	7.76	6.93

Advantages of Debt Funds

1. Lower Risk than Equities

Debt funds are less risky than the equity related investments, and therefore more preferable by conservative investors.

2. Steady Returns

It provides fairly stable returns since the debt funds invest in instruments with assured interest incomes

3. Liquidity

A debt fund is quite flexible because investors can encash their investments in debt funds at any time, unlike fixed deposits and bonds.

4. Tax Efficiency

Any debt funds which have been held for over three years come under the Long Term Capital Gains (LTCG) taxation regime which will fetch good profit after tax deduction

5. Diversification

Debt funds inverse in a diverse range of debt instruments ensuring your profile is diversified and reduce risk

6. Professional Management

The fund managers understand and make good decisions for the investors and get their portfolios to give the best returns with lesser risks

Who Should Invest in Debt Funds?

Debt funds are suitable for a variety of investors, including:

1. Risk-Averse Investors

If you want stable returns without exposing your capital to the volatility of equity markets, debt funds are a great choice.

2. Short-Term and Medium-Term Investors

Debt funds offer investment options tailored to specific time horizons, ranging from a few months to several years.

3. Retirees

For individuals looking for a steady income post-retirement, debt funds provide a reliable source of returns.

4. Investors Seeking Diversification

Including debt funds in your portfolio can balance the high-risk exposure of equity investments

Choosing the Right Debt Fund

Factors to Consider

1. Investment Horizon: Align with the fund’s duration to your target financial planning needs.
2. Risk Appetite: Select funds in accordance with your attitude to credit and interest rate risks.
3. Tax Implications: Choose those funds that you have less tax implication for the period you stay in the fund.
4. Fund Performance: Analyze the fund’s historical returns over a period to get an idea about the potential returns

FAQs

1. What kind of investment is a debt fund different from?

Being market linked products, there can be above fixed deposit rates of returns with better prospects in falling interest rate scenario. Thirdly, they are less likely to attract taxes when investing for the long-term or run a business.

2. Are debt funds safe?

Debt funds are less risky than equity funds but not riskless investment or trading tools. There self-funding dangers such as changes in interest rate and risky credits portfolio can affect amount of return.

3. Is it possible for debt funds to produce negative returns?

Yes, some debt funds such as credit risk funds may deliver negative return if issuances default or if there is a sharp increase of interest rates.

4. What is a credit risk fund?

Credit risk funds are designed to invest in lower rated securities with higher possible yields. They entail more risks than conventional debt funds but provide higher yields.

Conclusion

Debt funds are suited to those investors who are looking for attractive returns, minimal risk and ready-liquidations. By selecting debt funds, you get an investment product which can help you diversify your instruments portfolio, fulfill short-term financial goals, and create regular incomes. That is why the choice should be made very carefully, relying on the ability to take risks and financial goals that you have set.