Debt mutual funds are a great investment option if you are looking for investments that can generate reasonable returns along with provide a steady flow of income. Generally, debt funds invest in various fixed income-bearing securities such as government securities, treasury bills, corporate bonds, certificates of deposits, commercial papers, and money market instruments. Debt funds come in many varieties depending on the type and maturity tenure of underlying securities. Though debt funds are relatively less risky than equity mutual funds, to generate good returns from debt mutual funds you need to make a wise choice.
Here are some important points to consider to picking the best debt fund in 2022:
- Funds historic performance:
When selecting a debt fund, it is important to know the consistency of performance of that fund. You need to compare the performance of the fund and its consistency with the peer funds in the same category. You need to also check whether the fund has outperformed the benchmark or not. When it comes to mutual funds, it is important to keep in mind that past performance is not an indication of future performance. However, it is an important element to be considered while making investment choices. Always match the fund’s performance with its suitability to your investment needs, risk profile, and time horizon.
Compare the performance of the debt funds in India based on the type of debt fund that is suitable for your investment goals with the peer funds in the same category and with the benchmark. Comparison can be easily done online to choose the best debt fund for 2022.
- Fund manager’s track record:
Along with the fund’s historic performance, it is also important to know the track record of the fund manager. Know the experience of the fund manager and how the funds managed by them have performed over the years.
- Expense Ratio:
The expense ratio indicates the percentage of your investment that goes towards administration or as an annual maintenance charge levied by the mutual fund. If the expense ratio is high, it will have a huge impact on the returns that you take home. Hence, always ensure to go with funds that have lower expenses ratio. Funds with lower expenses ratio have a higher potential to deliver superior returns.
- Fund’s maturity:
When it comes to picking the best debt mutual fund, you need to consider the fund’s maturity. As debt funds invest in debt securities that come with a maturity date, it becomes important for you to match the maturity dates or investment horizons of underlying securities of the fund with the time frame you have for achieving your desired goal. You might have to incur a risk of loss by not paying attention to the maturity period of the fund. For example, if you are looking to invest for short-term goals that are just 6 months away, you can choose short-duration debt funds instead of choosing long-duration debt funds.
- Interest rate fluctuations:
Though debt mutual funds are not highly impacted by the market, there are risks of interest rate fluctuations that can hugely affect the performance of debt mutual funds in India. Keep the interest fluctuations in mind while choosing the best debt mutual funds to invest in 2022.
- Rating of the fund:
As debt funds predominately invest in debt securities, there is a credit risk that can affect the performance of the debt fund. The credit quality rating of the fund needs to be considered while picking the best debt mutual fund in India. Fund with AAA rating is considered to highest possible, stable, and strong debt securities in its portfolio. Hence, such funds can deliver stable returns.
Along with all the above elements, it is extremely important to choose the investments based on your financial need, time horizon to achieve your goals and risk appetite. Make a wise choice based on your investment need.