The Indian mutual fund industry has seen a tremendous surge over the past year, with assets under management rising by 40.70% in just one year-from ₹46.94 lakh crore in August 2023 to ₹66.04 lakh crore by August 2024, as per the report published by Association of Mutual Funds in India. This huge increase illustrates how mutual funds are becoming a major avenue for investments, particularly among those aspirants desiring stable returns. Among the myriad options, debt mutual funds stand out for their lower risk profile compared to equity investment, making them an excellent choice for conservative investors.
Debt funds are ideal for individuals seeking predictable stable returns over time. They primarily invest in fixed-income instruments such as government bonds, corporate bonds, and other types of debt securities, enabling a balanced approach toward wealth creation with minimal exposure to market volatility. In this blog we’ll discuss the top debt mutual funds to invest in 2024 to help you get started. So, let’s begin!
What are Debt Mutual Funds?
Debt mutual funds pool money from various investors to invest in debt instruments such as bonds, debentures, and treasury bills. The returns are generated mainly through interest payments and sometimes through the sale of such instruments for profit. Although more stable than equity funds, they offer better returns than bank fixed deposits, especially in the long run.
An essential characteristic of debt funds is Net Asset Value, which varies based on factors like interest rates and the credit ratings of the underlying debt instruments. For example, the cost of the existing bonds in the fund increases when the interest rates decline and correspondingly increases the NAV. Conversely, an increase in interest rates lowers the NAV.
Why Consider Debt Mutual Funds?
Here’s why you must include debt mutual funds in your portfolio:
1. Stability with Moderate Returns
Debt funds are less volatile than equity funds, making it an excellent investment option if stability is what you’re looking for. While they do carry a higher risk compared to a fixed deposit, returns on them tend to outpace those of a traditional FD, especially for the long term.
2. Liquidity
Many debt funds do not have a lock-in period, allowing you the flexibility to withdraw your investment. By comparison, this makes the investment extremely liquid compared to others.
3. Tax Efficiency
Debt funds are taxed on redemption. The tax is levied only on gains, not on the principal amount. Gains held for three years or more qualify for long-term capital gains tax, and this LTCG tax has indexation benefits.
What to Consider Before Choosing Debt Funds
When investing in debt funds, it’s essential to consider a few factors, including:
1. Risk Appetite
These funds are safer than equity funds but do carry interest rate and credit risks. So choose the fund that is suited to your risk appetite.
2. Investment Period
These funds work well with short-term goals as well as long-term planning. You can use liquid funds for the short term, while for the long term, you’ll need bond funds.
3. Expense Ratio
The lowest possible expense ratio means that more returns are with you. Compare the expense ratios of various funds before you decide.
4. Fund Manager’s Expertise
Debt fund performance largely depends on the ability of the fund managers. Look for funds managed by experienced professionals with a proven track record.
5. Credit Rating
Consider the credit rating of the fund’s portfolio holdings, as higher-rating bonds tend to pose lower risks.
Best Debt Mutual Funds to Invest in 2024
If you’re looking for investments in debt funds, here are some top-performing choices for 2024 based on their 3 and 5 year CAGR (Compounded Annual Growth Rate):
| Fund | 5-yr CAGR (%) | 3-yr CAGR (%) | AUM (₹ crore) | Minimum Investment (₹) |
| Aditya Birla Sun Life Medium Term Growth | 8.79 | 16.84 | 1,764 | 1,000 |
| Bandhan G-sec Invest | 8.98 | 5.13 | 1,482 | 1,000 |
| SBI Magnum Gilt Fund Direct Plan Growth | 8.63 | 5.97 | 5,667 | 5,000 |
| DSP G-sec Fund | 8.82 | 5.52 | 444 | 100 |
| Bandhan G-sec Constant Maturity Plan | 8.78 | 4.33 | 298 | 1,000 |
Conclusion
Investing in debt mutual funds can be a wise decision for individuals aiming to strike a balance between the risk and better returns than traditional saving instruments. Before you start investing, using an SIP calculator online from a reliable platform like AngelOne helps to project your potential returns swiftly and accurately. It helps you determine how much you require to invest regularly to achieve your desired financial goals, ensuring a much more structured approach to your investments.
Investing smartly in debt mutual funds can pave the way for a secure financial future, providing both growth and peace of mind.
