Top 10 Debt funds for SIP
SIP in Debt Funds
SIPs (Systematic Investment Plans) were first established in India over 20 years ago and have since become one of the most popular mutual fund investment vehicles in the country. According to AMFI statistics, over Rs 1 lakh crores was invested through SIP in the 2019-20. So far this fiscal year (ending December 31, 2020), almost 93.25 lakh SIP Accounts have been added, with cumulative SIP investments of Rs 71,349 crores in the first three quarters.
SIPs, on the other hand, are usually associated with equity investments among mutual fund participants. In this post, we’ll look at why SIPs probably be beneficial for fixed-income investors.
Fixed income, stock, gold, and other asset types have variable risk-return characteristics. Equity is the most volatile asset type, but it has the potential to provide better long-term returns. Gold is less volatile than stocks and can be used in form of an inflation hedge. Gold, on the other hand, is more volatile than fixed income.
Fixed income is designed to lower portfolio risks, provide stability, and create revenue.
In several economic cycles, different asset classes outperform each other. Gold and equity are often anti-cyclical.
In mixed economic cycles, different asset classes beat each other. In weak markets, fixed income may outperform equities, while, in bull markets, equity may outperform fixed income. Gold and stock cycles are distinct. In bull markets, equities outperform fixed income, while fixed income exceeds equity in imperfect markets.
What are Debt Funds
A fixed-income mutual fund (sometimes known by the term Debt Mutual fund) invests a large amount of your money in fixed-income securities, including government bonds, debentures, corporate bonds, and other money-market instruments. By investing in such outlets, debt mutual funds greatly minimize the risk factor for investors. This is a relatively safe investment choice that may assist you in accumulating wealth.
What is SIP in Debt Mutual Funds, and how does it work?
Debt funds invest in fixed-income assets like bonds and other debt instruments to create returns for investors. This implies that these funds purchase bonds and profit from the interest payments. This determines the yields received by mutual fund investors.
A Fixed Deposit (FD) functions similarly. When you deposit at your bank, you technically lend the bank money. In returne, the bank pays interest on the money lent.
You may invest over a long period and profit from the power of compounding by investing a specific amount every month (or at any other interval) from your monthly savings. Compounding isn’t only good for stocks; it’s suitable for fixed income over lengthy periods.
You may average your buying cost by investing a predetermined amount at regular periods (monthly or otherwise). Fixed income funds are market-linked. Thus their values fluctuate (albeit lesser than equity funds). Even with fixed-income funds, SIP allows you to profit from volatility.
On the other hand, debt fund investments have a lot more subtleties. For example, a debt fund can only acquire certain assets with defined maturity ranges – a gilt fund can buy government bonds. In contrast, a liquid fund can only buy securities with a maturity of up to 91 days. Debt funds, too, do not guarantee returns and instead provide market-linked returns that vary. Rising interest rates can improve yields and interest revenue while lowering bond prices. When interest rates decline, the opposite is true.
SIPs in debt funds can generate relatively good returns.
Overextended investment horizons, SIPs in debt funds can yield quite excellent returns.
While SIPs in debt funds may be a novel idea for some investors, most investors are familiar with another fixed-income systematic investment: recurrent bank deposits (RD).
Fixed income can outperform even in the long term.
Extreme market situations can cast doubt on widely held beliefs. According to one viewpoint, equity consistently outperforms in the long run. This is right since historical data reveals that equities are the most important performing asset type over time. However, traditional notions of what defines the long term are being questioned. Fixed income funds can outperform equities funds even over long periods under specific market scenarios.
Investing in debt funds has several benefits.
A steady source of revenue
Debt funds have the potential to provide long-term financial appreciation.
Efficient taxation
Many people invest for the sole purpose of lowering their annual tax bill. If tax minimization is a main investment aim, debt mutual funds may be suitable. This is because debt funds are less taxed than fixed deposits (FDs) than traditional investment choices.
The interest from FD is taxed each year depending on the income slab you qualify for, regardless of whether the maturity date is in that year or later. When it comes to debt funds, you only pay tax in the year you redeem them, not before. You just pay tax on the redemption proceeds even if it’s a partial redemption.
If you keep your mutual fund units for less than three years, you will pay Short Term Capital Gains (STCG) tax, and if you hold them for more than three years, you will pay Long-Term Capital Gains (LTCG). LTCG is qualified for indexation advantages, which means you will only be taxed on the returns that are higher than the inflation rate ( measured by the cost inflation index, or CII)
This lowers your tax bill while improving your post-tax returns.
Liquidity in abundance
Fixed deposits are subject to a lock-in period. The lender may impose a penalty if you prematurely liquidate your FD. While there are no lock-in periods for debt mutual funds, some have an exit load fee levied at the point of sale for early withdrawals. The exit load lasts a different amount of time depending on the fund, while some funds have no exit load at all. Debt mutual funds are liquid, allowing you to access your funds at any moment throughout the business day.
Stability
Debt funds may assist you in diversifying your portfolio. While equity funds have a more immense return potential, they can be volatile. This is because the success of equity funds is directly linked to the stock market’s performance. You can effectively diversify your portfolio and reduce overall risk by investing in debt funds (cushion the downside)
Flexibility
Debt mutual funds allow you to move your money between funds. A Systematic Transfer Plan makes this feasible (STP). You can invest an enormous sum in debt funds and then methodically shift a small piece of the money into equity at regular intervals. In this manner, rather than supporting the total cash at once, you may spread out the shares risk over a few months. Other traditional investing alternatives may not provide investors with the same level of freedom.
What are the many kinds of debt funds?
Liquid Funds
Liquid budgets are a form of debt mutual fund that is particularly liquid, as the name indicates. These funds put their money into debt instruments with a maximum maturity of 91 days. Some liquid funds allow investors to make a one-time withdrawal of up to Rs.50,000. These mutual funds are often regarded by the most secure in the business.
Short, medium, and long-term funds
The maturity of short-term debt funds ranges from one to three years. Interest Rate risk, known by the term interest Rate risk, has little effect on the prices of these funds, making them right for investors with a modest risk appetite.
Long-term funds have a portfolio maturity of over five years, while medium-term funds have a portfolio maturity of three to five years. Short-term funds are more risky than medium- to long-term funds. This is because the longer the period, the higher the impact of interest rates on the portfolio.
Dynamic bond funds
In these funds, the portfolio’s maturity is adjusted based on the fund’s interest Rate forecast. If interest rates are predicted to rise, the maturity is reduced. If interest rates are expected to fall, the maturity is extended. These funds have a flexible maturity period. They invest in both short-term (1-3 years) and long-term (3-5 years) products (3-5 years). In comparison to short-term debt funds, these products have a small risk premium.
Fixed Maturity Strategies
Fixed maturity plans (FMPs) have a lock-in period. Only during the original provide time may FMPs be acquired. You won’t be allowed to invest in this program again after that. Many investors equate FMPs to FDs since both have a lock-in period. Unlike FDs, FMPs do not guarantee a set rate of return. In comparison to FDs, FMPs are more tax efficient.
Who should put their money into debt funds?
Debt funds are best for investors who want to take on a moderate amount of risk. Investing in debt mutual funds has a lesser risk than investing in equity mutual funds. These funds may be a good fit for you if you have a low-risk appetite.
Diversifying your investment portfolio is another incentive to invest in debt funds. If you have a greater equity allocation in your portfolio, this probably be a helpful approach to minimize overall portfolio risk. The debt component probably help to mitigate any return risk on the downside.
Top 10 debt Funds for SIP
DSP Healthcare Fund – Direct-Growth
This is a mutual fund that invests mainly in pharmaceutical and healthcare companies.
Investors should avoid funds with a strictly defined investing mandate, like this one, according to us. Instead, they should put their money into Flexi-cap funds, which provide the fund management team unlimited latitude to invest in companies where they anticipate making the most money.
As of April 26, 2022, the DSP Healthcare Fund – Direct Plan’s current net asset value for the Growth option of its Direct plan is Rs 22.9790.
It has lagging returns of 11.98 percent (1 year), 31.22 percent (3 years), and 29.02 percent across several time periods (since launch). For the same time period, category returns are 10.44 percent (1 year), 25.03 percent (3 years), and 13.4 percent (5yr).
As of March 31, 2022, the DSP Healthcare Fund – Direct Plan has Rs 1291.46 crore in Assets under management.
As of February 28, 2022, the fund’s cost ratio for the Direct plan is 0.84 percent.
The DSP Healthcare Fund – Direct Plan will be subject to an Exit Load of 1% if redeemed during the first 12 months.
A minimum investment of Rs 500 is required, with an additional investment of Rs 500. SIP investments start at Rs 500.
Sectoral/thematic: The fund invests in Indian equities to the tune of 85.3 percent, with 37.01 percent in big-cap stocks, 15.31 percent in mid-cap stocks, and 14.36 percent in small-cap stocks.
Suitable For: Investors who have a better understanding of macro trends and want to take calculated risks in order to earn higher returns than other equity funds. Similarly, even if the overall market is performing well, these investors should expect moderate to severe losses in their investments.
If you need to repay your investment in less than seven years, do not invest in this or any other pharma sector fund.
Investment aim and benchmark
1. The fund’s investment aim is: “The plan attempts to create consistent returns by investing primarily in equity and equity-related securities of pharmaceutical and healthcare entities.”
2. The S&P BSE Healthcare Total Return Index is used like a benchmark.
Portfolio Composition & Asset Allocation
1. The fund’s asset allocation is around 100.03 percent stocks, 0.0 percent loans, and -0.03 percent cash and cash equivalents.
2. While the top 10 stock holdings Account for around 68.16 percent of total Assets, the top three sectors Account for approximately 98.25 percent.
3. The fund invests in a mix of market capitalizations, with roughly 48.71 percent in big-cap companies, 33.87 percent in mid-cap, and 17.42 percent in small-cap companies.
Earnings Taxability:
Capital gains
If mutual fund units are sold after one year from the date of investment, gains up to Rs 1 lakh are tax-free. Gains of more than Rs 1 lakh are subject to a 10% tax Rate.
The whole gain is taxed at a Rate of 15% if mutual fund units are sold under one year of when they were bought.
You won’t have to pay any taxes as long as you keep the units.
Dividends
Dividends are added to the investor’s income and are taxed. In addition, if an investor’s dividend income exceeds Rs. 5,000 in a calendar year, the fund house deducts a 10% TDS before releasing the dividend.
ICICI Prudential Ultra Short Term Fund – Direct Plan – Daily IDCW Payout
ICICI Prudential Ultra Short Term Fund – Direct Plan is an ICICI Prudential Mutual Fund House Open-ended Ultra Short Duration Debt strategy.
The fund started its operations on January 1, 2013.
The ICICI Prudential Ultra Short Term Fund – Direct Plan’s current net asset value as of April 26, 2022, is Rs 10.9586 for the IDCW Quarterly option of its Direct plan.
It has lagging returns of 4.44 percent (1 year), 6.41 percent (3 years), 7.04 percent (5 years), and 8.32 percent throughout various time periods (since launch). For the same time period, category returns are 3.61 percent (1 year), 4.87 percent (3 years), and 5.3 percent (5yr).
As of March 31, 2022, the ICICI Prudential Ultra Short Term Fund – Direct Plan has Rs 12298.87 crore in assets under management.
As of March 31, 2022, the fund’s cost ratio for the Direct plan is 0.39 percent.
The given fund doesn’t attract any Exit Load. Ultra Short Duration Fund: The fund invests 86.92 percent of its assets in debt, including 0.2 percent in government securities and 85.75 percent in very low-risk securities.
A minimum investment of Rs 5000 is required, with an extra investment of Rs 1000. A minimum SIP investment of Rs 1000.s is required.
Suitable for: Investors searching for a short-term investment option other than Bank Accounts or deposits.
Investment aim and benchmark
The fund’s investment aim is: “The plan attempts to create income by investing in a variety of debt and money market securities.”
The CRISIL Ultra Short Duration Fund BI Index is used as a benchmark.
Portfolio Composition & Asset Allocation
There are two types of risks in debt securities portfolio allocation: interest Rate risk and credit risk. While the fund’s length influences interest rate movements, the credit quality of debt instruments is determined by the fund’s weighted average credit ratings.
In general, funds with high credit quality will invest in securities with a weighted-average credit rating of AA- or higher, funds with medium credit quality will invest in securities with a credit rating of A- to BBB-, and funds with low credit quality will invest in securities with a weighted-average credit rating of less than BBB-.
Credit rating is a qualitative instrument that evaluates a company’s creditworthiness and financial soundness, taking into Account a number of indicators like the default Rate and the solvency of the corporate entity in question.
The fund’s portfolio includes Assets with varying maturities. The sensitivity of these securities’ average maturity to interest Rate movements is accounted for by their duration. ICICI Prudential Ultra Short Term Fund – Direct Plan has an average maturity of 0.32 years and a period of 0.26 years. Interest Rate movements are often more sensitive to Assets having a long term. As a result, an investor with a low-risk tolerance can consider investing in a fund with short maturity and duration in comparison to category norms.
To establish the quality of a fund’s portfolio, all of these factors – average maturity, duration, interest Rate variations, credit quality, credit rating, liquidity, and so on – must be considered in conjunction with one another.
Implications for Taxation
When units are redeemed under three years after purchase, the whole gain is added to the investor’s income and taxed at the applicable slab Rate.
Gains will be taxed at a Rate of 20% after indexation benefits for units redeemed after three years of investment. The process of indexation involves recalculating the purchase price after factoring in inflation. The benefit of indexation is that it lowers one’s capital gains, decreasing one’s taxable income and so cutting taxes.
Dividend income from this fund will be added to an investor’s income and taxed according to his or her tax bracket for the purposes of Dividend Distribution Tax.
Furthermore, the fund house is required to deduct a 10% TDS on dividend income exceeding Rs 5,000 in a financial year.
ICICI Prudential India Opportunities Fund Direct Plan-Growth
ICICI Prudential India Opportunities Fund – Direct Plan is an ICICI Prudential Mutual Fund House Open-ended Thematic Equity strategy.
The fund became live on January 15, 2019. As of April 27, 2022, the ICICI Prudential India Opportunities Fund – Direct Plan’s current net asset value for the Growth option of its Direct plan is Rs 19.1600.
It has lagging returns of 39.97 percent (1 year), 21.16 percent (3 years), and 22.81 percent throughout several time periods (since launch). For the same time period, category returns are 22.17 percent (1 year), 17.23 percent (3 years), and 12.01 percent (5yr).
As of March 31, 2022, the ICICI Prudential India Opportunities Fund – Direct Plan has Rs 4911.35 crore in Assets under management.
As of February 28, 2022, the fund’s cost ratio for the Direct plan is 0.62 percent.
If ICICI Prudential India Opportunities Fund – Direct Plan is redeemed within one year, an Exit Load of 1% would apply.
A minimum investment of Rs 5000 is required, with an extra investment of Rs 1000. SIP investments start at Rs 100.
Sectoral/thematic: The fund invests 96.84 percent of its Assets in Indian equities, with 71.11 percent in big caps, 13.73 percent in mid-caps, and 8% in small caps. Debt makes up 0.1 percent of the fund’s holdings, with 0.1 percent of it in government securities.
These investors should be prepared for moderate to large losses in their investments.
Investment aim and benchmark
1. The fund’s investment aim is to “create long-term capital appreciation by investing in opportunities afforded by unusual events like business restructuring, government policy and/or regulatory changes, companies facing unique temporary obstacles, and other comparable scenarios.”
2. The NIFTY 500 Shariah Total Return Index is used like a benchmark.
Portfolio Composition & Asset Allocation
The fund’s asset allocation is around 98.01 percent stocks, 0.1 percent bonds, and 1.89 percent cash and cash equivalents.
The top 10 equity holdings account for 64.05 percent of total assets, while the top three sectors account for 66.34 percent.
The fund invests primarily in firms with significant market capitalizations, with roughly 71.64 percent in gigantic and big-cap companies, 19.27 percent in mid-cap, and 9.09 percent in small-cap companies.
Implications for Taxation
1. Gains are taxed at a Rate of 15% if units are redeemed within one year after acquisition (Short-term Capital Gains Tax – STCG).
2. Gains from units redeemed after one year of investment are tax-free in that financial year up to Rs. 1 lakh.
3. Gains of more than Rs. 1 lakh will be taxed at a Rate of 10%. (Long-term Capital Gain Tax – LTCG).
4. Dividend income from this fund will be contributed to an investor’s income and taxed in accordance with his or her Dividend Distribution Tax slabs.
In addition, for dividend income exceeding Rs 5,000 in a financial year, the fund company must pay a 10% TDS.
Aditya Birla Sun Life CEF – Global Agri Plan – Growth-Direct Plan
“This is a fund that primarily invests in the stocks of foreign companies. If you invest for more than five years, you can expect profits that exceed inflation and returns from fixed income alternatives, but be prepared for future fluctuations in investment value.
International stock funds are an excellent place to put a percentage of your money for diversification, since they will protect a portion of your money if the Indian markets experience a significant fall. However, make sure you invest in a fund with a broad mandate that allows you to invest in firms of all sizes, industries, and nations.
As of April 27, 2022, the Aditya Birla Sun Life Commodity Equities Fund – Global Agri Plan’s current net asset value for the Growth option of its Regular plan is Rs 38.6590.
It has lagging returns of 36.19 percent (1 year), 21.7 percent (3 years), 14.71 percent (5 years), and 11.2 percent throughout various time periods (since launch). For the same time period, category returns are -3.74 percent (1 year), 11.27 percent (3 years), and 10.4 percent (5yr).
As of March 31, 2022, the Aditya Birla Sun Life Commodity Equities Fund – Global Agri Plan has Rs 19.56 crore in assets under management.
As of February 28, 2022, the fund’s cost ratio for the Regular plan is 1.75 percent.
An Exit Load of 1% for redemption within 30 days would be imposed on Aditya Birla Sun Life Commodity Equities Fund – Global Agri Plan.
A minimum investment of Rs 1000 is required, with an additional investment of Rs 1000. A Rs 1000 minimum SIP investment is needed.
Sectoral/thematic: The fund invests 2.51% of its Assets in Indian stocks, with 2.51% of that in big size companies.
Suitable For : Investors who are keenly aware of the macrotrends trying to make selective bets on better returns than other equity funds. At the same time, even if the broader market is functioning well, these investors need to be prepared for moderate to large losses from their investments.
Investment aim and benchmark
The fund’s investment goal is to “The plan would invest in (1) equities of certain commodity-focused companies issued in India (up to 35 percent) or overseas (at least 65 percent) and/or (2) foreign mutual fund schemes with comparable investment aim (up to 35 percent). The scheme will be managed by investing in equities from the S&P Global Agribusiness Index.”
The S&P Global Agribusiness Total Return Index is used like a benchmark.
Portfolio Composition & Asset Allocation
The fund’s asset allocation is around 91.19 percent stocks, 7.92 percent loans, and 0.88 percent cash and cash equivalents.
Nutrien Ltd. is the fund’s largest stake, accounting for about 10.05 percent of its assets.
Implications for Taxation
When units are redeemed within three years after purchase, the whole gain is added to the investor’s income and taxed at the applicable slab Rate.
Gains will be taxed at a Rate of 20% after indexation benefits for units redeemed after three years of investment. The process of indexation involves recalculating the purchase price after factoring in inflation. The advantage of indexing is that it reduces capital gains. This reduces taxable income, which in turn reduces taxable income.
For the purposes of Dividend Distribution Tax, the dividend income from this fund will be added to an investor’s income and taxed according to his or her tax bracket.
Furthermore, for dividend income exceeding Rs 5,000 in a financial year, the fund house is obligated to deduct a 10% TDS.
ICICI Prudential Multicap Fund – Dividend
If you invest for five years or longer, you may expect gains that easily surpass inflation and returns from fixed-income investments. Be prepared, though, for fluctuations in the value of your investment down the future.
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This fund is required to invest at least 25% of its Assets in stocks of big, medium, and small businesses. Because at least 50% of their Assets are constantly invested in mid and small-cap equities, which have more severe ups and downs, such funds may be relatively volatile.
This makes them excellent for long-term investors who are willing to take on more risk, but we recommend that you look into Flexi-cap funds, which provide fund managers unlimited discretion in selecting companies of several sizes.
You must invest exclusively through the SIP approach, as with other equity funds.
ICICI Prudential Multicap Fund is an ICICI Prudential Mutual Fund that invests in Equity – Multi-Cap Funds. It was founded on October 1, 1994, and has a current AUM of Rs. 6,255.43 crore. The NIFTY 50 – TRI is the main index, and the NIFTY 500 Multicap 50:25:25 TRI is the secondary index, for the ICICI Prudential Multicap Fund.
Yesterday, the NAV of the ICICI Prudential Multicap Fund fell by 0.17 percent to 25.03.
The fund holds ICICI Bank Ltd. as one of its top three holdings.
Priyanka Khandelwal and Prakash Gaurav Goel manage the ICICI Prudential Multicap Fund.
Multi Size Fund: The fund invests 97.36 percent of its Assets in Indian stocks, with big-cap stocks accounting for 37.14 percent, mid-cap stocks for 19.32 percent, and small-cap stocks accounting for 27.52 percent.
Suitable For: Investors seeking for a strong return on their money over a period of at least 3-4 years. However, these investors should be aware that their investments may suffer moderate losses.
IDFC Government Securities Fund – Constant Maturity Regular – Growth
“This is a fund that primarily invests in government of India bonds with ten-year or longer maturities. These bonds have no danger of default since the government guarantees the repayment of investors’ funds. They are, however, prone to dramatic ups and downs when interest rates fluctuate.
Retail investors, on the other hand, can avoid these funds entirely. There are simply too many different types of debt funds, each with its own categorization system based on the types and durations of bonds they can invest in. We feel that there are far too many fund classifications, which may simply be avoided.
For an investment horizon of up to one year, retail investors can merely invest in Liquid funds in their longer-term portfolios, and Short Duration funds in their longer-term portfolios for the fixed income allocation (which should be 100% for an investment horizon of up to three years).”
IDFC Government Securities Fund – Constant Maturity Plan – Regular Plan is an IDFC Mutual Fund House open-ended Gilt with a 10-year Constant Duration Debt plan.
On March 9, 2002, the fund was established.
As of April 27, 2022, the current net asset value of the IDFC Government Securities Fund – Constant Maturity Plan – Regular Plan for the Growth option of its Regular plan is Rs 35.9372.
It has trailing returns of 0.5 percent (1 year), 7.95 percent (3 years), 8.41 percent (5 years), and 6.53 percent across various periods (since launch). For the same period, category returns are -0.19% (1 year), 7.07 percent (3 years), and 6.73 percent (5yr).
As of March 31, 2022, the IDFC Government Securities Fund – Constant Maturity Plan – Regular Plan has assets under management of Rs 222.81 crore.
As of March 31, 2022, the fund’s cost ratio for the Regular plan is 0.64 percent.
No Exit Load is attracted to the specified fund.
A minimum investment of Rs 5000 is required, with an extra Rs 1000. SIP investments start at Rs 100.
Gilt Fund with a 10-year constant duration: The fund is invested in debt to 97.72 percent, with 97.72 percent of it in government securities.
Suitable For: Investors who wish to invest money for a more extended period but whose primary concern is the protection of their funds.
Investment goal and benchmark
1. The fund’s investment goal is to “provide optimal returns while preserving high liquidity by investing in Government securities with a weighted average portfolio maturity of about 10 years.”
2. It is compared to the CRISIL 10-Year Gilt Index.
Portfolio Composition & Asset Allocation
There are two types of risks in debt securities portfolio allocation: interest rate and credit risk. While the fund’s length influences interest rate movements, the credit quality of debt instruments is determined by the fund’s weighted average credit ratings.
In general, funds with high credit quality will invest in securities with a weighted-average credit rating of AA- or higher, funds with medium credit quality will invest in securities with a credit rating of A- to BBB-, and funds with low credit quality will invest in securities with a weighted-average credit rating of less than BBB-.
Credit rating is a qualitative instrument that evaluates a company’s creditworthiness and financial soundness, taking into account several indicators such as the default rate and the solvency of the corporate entity in question.
2. The fund’s portfolio includes assets with varied maturities. The sensitivity of these securities’ average maturity to interest rate movements is accounted for by their duration. IDFC Government Securities Fund – Constant Maturity Plan – Regular Plan has an average maturity of 9.19 years and 6.64 years. Interest rate movements are often more sensitive to assets having a long term. As a result, an investor with a low risk tolerance can consider investing in a fund with a short maturity and duration compared to category norms.
3. To establish the quality of a fund’s portfolio, all of these factors – average maturity, duration, interest rate variations, credit quality, credit rating, liquidity, and so on – must be considered in conjunction with one another.
Implications for Taxation
When units are redeemed within three years after purchase, the whole gain is added to the investor’s income and taxed at the applicable slab rate.
Gains will be taxed at a rate of 20% after indexation advantages for units redeemed after three years of investment. The process of indexation involves recalculating the purchase price after factoring in inflation. The benefit of indexation is that it lowers one’s capital gains, decreasing one’s taxable income and cutting taxes.
The fund house is required to deduct a 10% TDS on dividend income exceeding Rs 5,000 in a financial year
Nippon India Nivesh Lakshya Fund – Regular Plan-Growth
“Long-term debt funds mostly invest in bonds with maturities of more than seven years.” They attempt to achieve higher returns than similar-term bank fixed deposits. These funds have a low chance of losing money throughout the specified period, but they can be somewhat volatile in response to interest rate changes.
Retail investors best avoid these funds. Short Duration funds, we feel, are a superior option for a fixed-income component in an investor’s portfolio.
We also feel that investors with a seven-year or longer investment horizon should consider investing at least some of their money in equity funds to increase their returns. They have more severe ups and downs than debt funds, but the risk of losing money is significantly decreased if you invest for seven years or more.”
Nippon India Nivesh Lakshya Fund: Regular Plan is a Nippon India Mutual Fund House Open-ended Long Duration Debt program.
On July 6, 2018, the fund was launched.
Long Duration Fund: The fund has a debt investment of 96.79 percent, with 96.79 percent in government securities.
As of April 27, 2022, the Nippon India Nivesh Lakshya Fund – Regular Plan’s current net asset value for the Growth option of its Regular plan is Rs 13.9363.
It has trailing returns of 0.08 percent (1 year), 7.91 percent (3 years), and 8.91 percent across various periods (since launch). For the same period, category returns are 2.41 percent (1 year), 7.2 percent (3 years), and 6.27 percent (5yr).
As of March 31, 2022, the Nippon India Nivesh Lakshya Fund – Regular Plan has assets under management totaling Rs 1882.17 crore.
As of March 31, 2022, the fund’s cost ratio for the Regular plan is 0.52 percent.
Suitable For :Investors who wish to invest money for a more extended period yet choose less risky assets than equity funds.
Investment goal and benchmark
1. The fund’s investment objective is to “The plan aims to achieve optimal returns while assuming a reasonable amount of risk.
This income might be supplemented by portfolio capital appreciation.”
2. The CRISIL Long Duration Fund AIII Index is used as a benchmark.
Portfolio Composition & Asset Allocation
There are two types of risks in debt securities portfolio allocation: interest rate and credit risk. While the fund’s length influences interest rate movements, the credit quality of debt instruments is determined by the fund’s weighted average credit ratings.
In general, funds with high credit quality will invest in securities with a weighted-average credit rating of AA- or higher, funds with medium credit quality will invest in securities with a credit rating of A- to BBB-, and funds with low credit quality will invest in securities with a weighted-average credit rating of less than BBB-.
Credit rating is a qualitative instrument that evaluates a company’s creditworthiness and financial soundness, taking into account several indicators such as the default rate and the solvency of the corporate entity in question.
2. The fund’s portfolio includes assets with varied maturities. Their duration accounts for the sensitivity of these securities’ average maturity to interest rate movements. Nippon India Nivesh Lakshya Fund – Regular Plan has an average maturity of 23.29 years and 10.86828199 years.
Interest rate movements are often more sensitive to assets having a long term. As a result, an investor with a low risk tolerance can consider investing in a fund with a short maturity and duration compared to category norms.
3. To establish the quality of a fund’s portfolio, all of these factors – average maturity, duration, interest rate variations, credit quality, credit rating, liquidity, and so on – must be considered in conjunction with one another.
Implications for Taxation
1. If units are redeemed within three years of purchase, the whole gain is applied to the investor’s income and taxed at the investor’s appropriate slab rate.
2. Gains will be taxed at a rate of 20% after indexation advantages for units redeemed after three years of investment. The process of indexation involves recalculating the purchase price after factoring in inflation. The benefit of indexation is that it lowers capital gains, which reduces taxable income and so lowers taxes.
3. For dividend distribution tax, dividend income from this fund will be added to the investor’s income and taxed according to the investor’s tax rate.
Furthermore, the fund house must deduct a 10% TDS on dividend income exceeding Rs 5,000 in a financial year.
ICICI Prudential BHARAT 22 FOF – Direct-Growth
As of April 27, 2022, the current Net Asset Value of the ICICI Prudential BHARAT 22 FOF – Direct Plan for the Growth option of its Direct plan is Rs 14.6244.
It has lagging returns of 49.1 percent (1 year), 10.71 percent (3 years), and 11.36 percent across various periods (since launch). For the same period, category returns are: 20.17 percent (1 year), 13.83 percent (3 years), and 13.22 percent (5yr).
As of March 31, 2022, the ICICI Prudential BHARAT 22 FOF – Direct Plan has Rs 55.11 crore in assets under management.
As of March 31, 2022, the fund’s cost ratio for the Direct plan is 0.08 percent.
No Exit Load is attracted to the specified fund.
A minimum investment of Rs 5000 is required, with an extra Rs 1000. A Rs 1000 minimum SIP investment is needed.
ICICI Prudential BHARAT 22 FOF: Direct Plan is an ICICI Prudential Mutual Fund House Open-ended Large Cap Equity strategy.
On June 29, 2018, the fund was launched.
Investment goal and benchmark
“The plan attempts to create profits by investing in units of BHARAT 22 ETF,” according to the fund’s investment objective.
2. It has been compared to null.
Portfolio Composition & Asset Allocation
1. The fund’s asset allocation is around 99.46 percent stocks, 0.0 percent loans, and 0.54 percent cash and cash equivalents.
2. The top 10 equity holdings account for roughly 99.59 percent of assets, while the top three sectors account for around 70.81 percent.
3. The fund invests across market capitalisations, with 92.06 percent in gigantic and big-cap firms, 7.12 percent in mid size, and 0.81 percent in small-cap companies.
Implications for Taxation
If units are redeemed within one year of purchase, gains are taxed at 15%. (Short-term Capital Gains Tax – STCG).
Gains on units redeemed after one year of investment are tax-free up to Rs. 1 lakh in a financial year.
A 10% tax rate is levied on profits over Rs 1 lakh (LTCG stands for Long-Term Capital Gains Tax.)
This fund’s dividend income will be added to an investor’s income and taxed according to their Dividend Distribution Tax slabs.
Furthermore, the fund house must deduct a 10% TDS on dividend income exceeding Rs 5,000 in a financial year.
IDFC Government Securities Fund – Investment Plan – Regular Plan-Growth
IDFC Government Securities Fund – Investment Plan – Regular Plan is an IDFC Mutual Fund House Open-ended Gilt Debt plan.
The fund began operations on December 1, 2008.
As of April 27, 2022, the current net asset value of the IDFC Government Securities Fund – Investment Plan – Regular Plan for the Growth option of its Regular plan is Rs 28.4853.
It has lagging returns of 3.11 percent (1 year), 8.75 percent (3 years), 7.4 percent (5 years), and 8.13 percent across various periods (since launch). For the same period, category returns are 2.27 percent (1 year), 7.11 percent (3 years), and 6.21 percent (5yr).
As of March 31, 2022, the IDFC Government Securities Fund – Investment Plan – Regular Plan has assets under management at Rs 1443.71 crore.
As of March 31, 2022, the fund’s cost ratio for the Regular plan is 1.26 percent.
No Exit Load is attracted to the specified fund.
A minimum investment of Rs 5000 is required, with an extra Rs 1000. A Rs 1000 minimum SIP investment is needed.
Gilt Fund: The fund has a debt investment of 97.01 percent, with 97.01 percent in government securities.
Suitable For: Investors who wish to invest money for a more extended period but whose primary concern is the protection of their funds.
Investment goal and benchmark
The fund’s investment aims to “produce an acceptable return while maintaining high liquidity by investing in Government securities of various maturities.”
The CRISIL Dynamic Gilt Index is used as a benchmark.
Portfolio Composition & Asset Allocation
There are two types of risks in debt securities portfolio allocation: interest rate and credit risk. While the fund’s length influences interest rate movements, the credit quality of debt instruments is determined by the fund’s weighted average credit ratings.
In general, funds with high credit quality will invest in securities with a weighted-average credit rating of AA- or higher, funds with medium credit quality will invest in securities with a credit rating of A- to BBB-, and funds with low credit quality will invest in securities with a weighted-average credit rating of less than BBB-.
Credit rating is a qualitative instrument that evaluates a company’s creditworthiness and financial soundness, taking into account several indicators such as the default rate and the solvency of the corporate entity in question.
The fund’s portfolio includes assets with varied maturities. The sensitivity of these securities’ average maturity to interest rate movements is accounted for by their duration. IDFC Government Securities Fund – Investment Plan – Regular Plan has an average maturity of 4.15 years and 3.53 years.
Interest rate movements are often more sensitive to assets having a long term. As a result, an investor with a low risk tolerance can consider investing in a fund with a short maturity and duration compared to category norms.
To establish the quality of a fund’s portfolio, all of these characteristics – average maturity, duration, interest rate variations, credit quality, credit rating, liquidity, and so on – must be considered in conjunction with one another.
Implications for Taxation
When units are redeemed within three years after purchase, the whole gain is added to the investor’s income and taxed at the applicable slab rate.
Gains will be taxed at a rate of 20% after indexation advantages for units redeemed after three years of investment. The process of indexation involves recalculating the purchase price after factoring in inflation. The benefit of indexation is that it lowers capital gains, which reduces taxable income and so lowers taxes.
Dividend income from this fund is added to the investor’s income and is taxed according to the investor’s tax rate for dividend distribution tax.
Furthermore, the fund house must deduct a 10% TDS on dividend income exceeding Rs 5,000 in a financial year.
Nippon India Gilt Securities Fund – Direct Plan Defined Maturity Date Option – Growth
The Nippon India Gilt Securities Fund: Direct Plan is a Nippon India Mutual Fund House open-ended Gilt Debt plan.
On January 1, 2013, the fund was established.
As of April 27, 2022, the Nippon India Gilt Securities Fund – Direct Plan’s current net asset value for the Growth option of its Direct plan is Rs 33.8653.
it has lagging returns of 3.16 percent (1 year), 8.52 percent (3 years), 8.05 percent (5 years), and 9.6 percent throughout various time periods (since launch). For the same period, category returns are 2.27 percent (1 year), 7.11 percent (3 years), and 6.21 percent (5yr).
As of March 31, 2022, the Nippon India Gilt Securities Fund – Direct Plan has Rs 1259.7 crore in assets under management.
As of March 31, 2022, the fund’s cost ratio for the Direct plan is 0.6 percent.
Gilt Fund: The fund has a debt investment of 90.24 percent, with 90.24 percent in government securities.
Suitable For: Investors who wish to invest money for a more extended period but whose primary concern is the protection of their funds.
Investment goal and benchmark
The fund’s investment objective is to “create optimal credit risk-free returns by investing in a portfolio of securities issued and guaranteed by the federal and state governments.”
The CRISIL Dynamic Gilt Index is used as a benchmark.
Portfolio Composition & Asset Allocation
There are two types of risks in debt securities portfolio allocation: interest rate and credit risk. While the fund’s length influences interest rate movements, the credit quality of debt instruments is determined by the fund’s weighted average credit ratings.
In general, funds with high credit quality will invest in securities with a weighted-average credit rating of AA- or higher, funds with medium credit quality will invest in securities with a credit rating of A- to BBB-, and funds with low credit quality will invest in securities with a weighted-average credit rating of less than BBB-.
Credit rating is a qualitative instrument that evaluates a company’s creditworthiness and financial soundness, taking into account several indicators such as the default rate and the solvency of the corporate entity in question.
The fund’s portfolio includes assets with varied maturities. The sensitivity of these securities’ average maturity to interest Rate movements is accounted for by their duration. Nippon India Gilt Securities Fund – Direct Plan has an average maturity of 5.55 years and 4.30842912 years.
Interest rate movements are often more sensitive to Assets having a long term. As a result, an investor with a low risk tolerance can consider investing in a fund with a short maturity and duration compared to category norms.
3. To establish the quality of a fund’s portfolio, all of these factors – average maturity, duration, interest Rate variations, credit quality, credit rating, liquidity, and so on – must be considered in conjunction with one another.
Implications for Taxation
If the shares are redeemed within three years of purchase, the profits will be offset against the investor’s income and taxed at the investor’s appropriate fixed amount.
Gains will be taxed at a Rate of 20% after indexation benefits for units redeemed after three years of investment.
The process of indexation involves recalculating the purchase price after factoring in inflation. The benefit of indexation is that it lowers capital gains, which reduces taxable income and so lowers taxes.
For Dividend Distribution Tax, This fund’s dividend income will be added to an investor’s income and taxed at his or her marginal Rate.
Furthermore, the fund house must deduct a 10% TDS on dividend income exceeding Rs 5,000 in a financial year.
How do you pick debt funds?
You can choose from a variety of debt funds. Choosing the right fund from a plethora of options probably be challenging. Examine the following things before selecting a fund.
Investing aim
Before selecting a debt fund, ask yourself, “What is my investing aim?” before selecting a debt fund. As we’ve seen, different types of debt funds cater to various investing objectives. Consequently, after you’ve established your investment aim, selecting the appropriate fund becomes considerably more manageable.
Time horizon
Every investmentaim has a deadline attached to it. If you’re looking to invest for three months to a year, liquid funds are a good choice. If the duration is between 1-3 years, you can employ short-term debt funds. Dynamic / medium-term bond funds, on the other hand, are excellent for investors with a 3-5-year time horizon.
Risk
Debt funds include unique risks, like credit and interest-rate risk. When the fund management invests your money in Assets with a poor credit rating, you are exposed to credit risk. As a result, there’s a higher chance of default. Bond prices may decline if interest rates rise, resulting in unsatisfactory returns on your investment in the event of interest-rate risk.
This is why, before investing in any debt fund, It is important to thoroughly investigate the history of the fund and the past performance of the fund manager.
If you want a more stable income than stocks while minimizing your exposure to market risk, debt mutual funds are an intelligent option to investigate. Depending on your investment aims and time horizon, You can choose from several debt funds, including: liquid funds, ultra-short-term debt funds, fixed-term plans, etc.
edited and proofread by nikita sharma
