Which Type Of Debt Mutual Fund Is The Best for you?

How to choose the best debt fund

Type Of Debt Mutual Fund

Debt mutual funds are schemes that invest in debt instruments, i.e., instruments that carry a fixed rate of interest. Common examples include bonds, debentures, Government securities, money market instruments, etc. Debt mutual funds have low volatility risks and offer stable returns.

Related - Know more about debt mutual funds

There are 16 different types of debt funds that SEBI (Securities and Exchange Board of India) has categorized. The categorization is largely based on the type of securities that the fund invests in. Have a look -

type of securitiestype of securities

Given the different types of debt funds available, which fund will be suitable for you?

Which debt fund is the best for you?

The choice of the best debt fund depends on the following factors –

  • Your financial goals
  • Investment horizon
  • Investment strategy

There’s no universal one-size-fits-all concept when it comes to choosing the right debt fund. You need to consider the aforementioned factors to choose a fund that would best meet your financial needs.

Here’s how you pick the right debt fund –

  • If you are looking to park your surplus funds for a short time, you can invest in overnight or liquid funds. Overnight funds can deliver annual average returns of 4%, while liquid funds can deliver 7% to 9%.
  • If you want to invest for the next few months, ultra-short of low duration funds will be suitable, with annual returns of around 4%
  • If your investment horizon is between 1 and 3 years, choose short or low-duration funds with average annual returns of 4%
  • For long-term investments, medium and long-duration debt funds will be a good choice with returns ranging from 7% to 10%
  • For mixing different maturities, pick a dynamic fund, and if you believe that interest rates might rise in the future, floater funds would be good with average annual returns from 6% to 9%
  • You can choose the security-specific fund for investment into specific securities like G-secs or banks. Such funds can offer returns ranging from 5% to 7% and even higher.

You can also choose two or more types of debt funds for diversifying your portfolio and also to meet the different investment needs that you might have.

Once you shortlist the fund that best aligns with your needs, compare the funds offered by different fund houses in the chosen category. Choose a scheme that offers the highest and the most consistent returns so you can get the best for your investment.

Invest in suitable debt funds and create a stable corpus for your financial goals, immune from volatility risks.

Related - Check out the best debt funds in India 


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