Debt MFs catch investor fancy as their returns go up to 23%
- In April, the debt mutual funds saw overall net inflows of ₹1.06 lakh crore as against outflows of ₹56,884 crore in March.
- Analysts say that the strong inflows in debt funds shows increased investor interest in fixed income products than in equity funds that are facing volatility.
- In the last one year, FDs have given returns up to 7%, while top debt mutual funds gave 8%-23% returns.
AdvertisementDebt funds have been gaining traction from investors despite withdrawal of tax benefits after the Finance Bill that proposed to do away with long-term capital gains tax benefits on debt investments.
The change in the tax structure in March 2023 seems to have not disturbed the investments coming in debt products, shows data by Association of Mutual Funds in India (AMFI). As per the proposed changes in the Finance Bill, investors in debt funds will have to pay tax according to their income slabs. Investors have so far benefited from indexation while calculating long-term capital gains from debt funds but this will now longer be available from 1 April, 2023.
In spite of this, in April, the debt mutual funds saw overall net inflows of ₹1.06 lakh crore due to strong flows in liquid funds and money market funds. In March, debt MFs saw outflows of ₹56,884 crore.
Analysts say that the strong inflows in debt funds shows increased investor interest in fixed income products than in equity funds that are facing volatility.
“The data for April 2023 shows that investors preferred fixed income as a choice of investment than equity oriented options,” said Sriram BKR, senior investment strategist at Geojit Financial Services.
Right time to invest for debt MFs, say analysts
Debt mutual funds have benefitted from the rising interest rates cycle. In fact, analysts believe this is the right time to increase allocation to such products as monetary policy tightening is in its last phase.
“We think it is the right time for investors to increase allocation to fixed income as monetary tightening enters its last phase globally with a strong possibility of rate cuts in the last quarter of CY23 in US with India following suit in early CY24,” said Puneet Pal, head-fixed income at PGIM India Mutual Fund.
Pal recommended investors with medium to long term investment horizons to look at funds having duration of 3-4 years with predominant sovereign holdings, as they offer a better risk reward currently. And investors having an investment horizon of 6-12 months can look at money market funds as yields are pretty attractive in the 1-year segment of the curve, he added.
There is yet another case to invest in debt funds, as here, one has to pay tax only on withdrawal. In the case of FDs, taxes are to be paid every financial year when the bank credits interest to the account.
Besides, investors also have an opportunity to put money through SIP mode and withdraw frequently as well.
Advertisement“This segment attracting such inflows despite LTCG being taken away in the previous month is a strong indication of what is lying ahead. The current interest rate cycle showing signs of peaking out and inflation data showing some relief, must be the reason for such high traffic towards debt oriented schemes,” said Viraj Gandhi, CEO at SAMCO MF.
In the last one year, FDs have given returns up to 7% and on the other hand, top debt funds have given at least 8-23% returns during the period.
Top 20 debt funds as per their returns in the last one year
Source: Value Research
|Scheme Name||Category||1 Year||6 Month|
|Aditya Birla Sun Life Medium Term Plan||Debt: Medium Duration||23.78||3.99|
|Bank of India Short Term Income Fund - Regular Plan||Debt: Short Duration||12.94||3.22|
|Nippon India Nivesh Lakshya Fund - Regular Plan||Debt: Long Duration||11.12||6.24|
|Aditya Birla Sun Life Dynamic Bond Fund - Regular Plan||Debt: Dynamic Bond||9.84||3.93|
|BHARAT Bond ETF - April 2032||Debt: Target Maturity||9.62||5.34|
|BHARAT Bond ETF FOF - April 2032 - Regular Plan||Debt: Target Maturity||9.54||4.27|
|BHARAT Bond ETF - April 2031||Debt: Target Maturity||9.49||5.02|
|BHARAT Bond FOF - April 2031 - Regular Plan||Debt: Target Maturity||9.36||4.76|
|BHARAT Bond FOF - April 2030 - Regular Plan||Debt: Target Maturity||9.26||4.77|
|Aditya Birla Sun Life Credit Risk Fund - Regular Plan||Debt: Credit Risk||9.26||3.63|
|BHARAT Bond ETF - April 2030||Debt: Target Maturity||9.11||4.93|
|Kotak Nifty SDL Apr 2032 Top 12 Equal Weight Index Fund - Regular Plan||Debt: Target Maturity||9.02||5.47|
|Invesco India Credit Risk Fund - Regular Plan||Debt: Credit Risk||8.92||6.84|
|Nippon India ETF Nifty 8-13 yr G-Sec Long Term Gilt||Debt: Gilt||8.68||5.08|
|SBI Magnum Gilt Fund||Debt: Gilt||8.63||4.78|
|LIC MF Nifty 8-13 yr G-Sec Exchange Traded Fund||Debt: Gilt||8.57||5.04|
|Tata Gilt Securities Fund - Regular Plan||Debt: Gilt||8.45||4.84|
|SBI Magnum Constant Maturity Fund||Debt: Gilt with 10 year Constant Duration||8.41||4.92|
|SBI Dynamic Bond Fund||Debt: Dynamic Bond||8.24||4.58|
|SBI Nifty 10 yr Benchmark G-Sec ETF||Debt: Gilt with 10 year Constant Duration||8.19||5.35|
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