Debt Funds - A Complete Guide on Debt Mutual Funds

Debt Fund is a mutual fund scheme that invests in debt instruments which generate fixed income. They are also known as income funds or bond funds. These securities can be issued by private or public companies and the government. These instruments have a fixed maturity date and interest rate. Hence, their returns are more stable and predictable. While equity funds are dependent on the stock market, debt mutual funds are affected by interest rate cycles in the economy.

[Read More: What are Debt Mutual Funds? – Best Debt Mutual Funds for 2021]

In this article we cover:

• 1) What are Debt Funds?

• 2) How Do Debt Funds Work?

• 3) Major Risks in Debt Funds.

• 4) Types of Debt Funds in India.

• 5) How are Debt Funds Taxed?

• 6) Things to Consider Before Investing in Debt Funds.

• 7) Top 10 Best Debt Funds in India for 2021.

• 8) How To Invest in Debt Funds?

• 9) FAQs on Debt Funds

What are Debt Funds?

Debt funds collect money from various investors and this pooled money is then invested in fixed income securities like:

Debt mutual funds are managed by professional fund managers. Their job is to invest the corpus in bonds issued by private or public companies and the government as per the fund’s investment objective.

Unlike equity funds, debt mutual funds are directly affected by interest rate movements. When interest rates are falling, your debt fund will invest in long-term papers. This is because short term papers face high reinvestment risk. Whereas when interest rates rise, they invest in short-term papers.

Watch our free video on What are Debt Funds to know more

How Do Debt Funds Work?

Three parties are involved in the working of a debt fund:

When you invest in a debt fund, you are basically giving a loan to the borrowers. This loan can be short-term, ultra short-term or long-term. This loan will have a fixed maturity date and interest rate. On maturity, the borrower will repay you the principal amount along with final interest payment.

Who are these borrowers?

Like us, even companies and governments need funds for their growth and expansion. A company borrows capital to meet its working capital requirements. The government can borrow funds to meet its fiscal deficit or to develop infrastructure.

So, now we have two parties. One party has surplus funds to lend and the other party wants a loan. But both these parties do not directly interact with each other. They interact through a fund manager.

A fund manager collects money from all investors and gives short-term or long-term loans to the borrowers. He then collects interest from borrowers and pays to investors (lenders). He charges a fee for this service. We call it the expense ratio. On maturity, they collect the principal from borrowers and pay back to investors.

While selecting borrowers to lend to, fund managers keep the following things in mind:

• Credit Rating
• Maturity of Papers

Credit rating is like a report card for companies. An independent third-party entity like CRISIL or ICRA, rates a company’s bonds and provides a credit rating. This rating differs for short-term bonds and long-term bonds.

Majority of fund managers invest in AAA or A1 rated bonds as they are highly safe. Except for the fund manager of credit risk debt funds. He specifically looks for low-rated bonds. A bond’s rating greatly influences its interest rate. So, a low-rated bond will usually pay higher interest. This is a way for the borrowers to compensate you for the risk you take by investing in their low rated bonds.

For example: Below is the portfolio of Aditya Birla Sun Life Dynamic Bond Fund.

Notice that Shriram City Union Finance and Tata Realty are offering 9.25% and 8.40% interest rate compared to Power Finance Corporation because they are not AAA rated. This additional 3.78% and 2.93% is to attract investors and compensate them for high credit risk.

Maturity of Papers is nothing but the period of loan. Some companies might require a loan of only three months. Whereas the government usually borrows for more than ten years. So, the fund manager has to carefully match the tenure of the loan to interest rates in the markets.

Imagine if the fund manager invests in 10-year bond at 6% and the interest rate in the economy rises to 7%. Investors will end up losing on 1% returns for 10 years! To avoid this, evaluating maturity of papers is crucial for debt fund managers.

Let us take a real-life example to understand how debt funds work.

The Assets under Management (AUM) of HDFC Corporate Bond Fund is Rs 26,670 crores. This is the total amount collected from lakhs of investors. Mr Anupam Joshi is the fund manager. He has given loan to the following entities on behalf of investors (refer the image below). He will collect interest from these borrowers and pay to investors. On maturity, he will collect the principal amount and invest in fresh bonds or debentures. This cycle of investment continues throughout the life of the debt fund.

Let us now understand the relationship between debt funds and interest rates.

Debt Funds & Interest Rate: An Inverse Relationship

Suppose the current interest rates in the market is 6%. Power Finance Corporation (PFC) issues a bond offering 6.50%. Everyone will invest in this bond as its offering a higher interest rate. The tenure of this bond is 10 years.

But the very next year, interest rates rise to 6.60%. Now Tata Realty brings out a new bond offering 6.80% returns.

What will happen to the PFC bond?

Investors will bombard the secondary market to sell the PFC bond. After all, why will they earn 6.50% when they can earn 6.80%? So, the price of PFC bond will fall.

But not every investor will be able to sell their bonds because there would be only a few buyers. So, investors will be stuck earning lower returns for 10-years.

A fall in PFC’s bond price directly increases its yield to maturity (YTM). This happens because now investors have to pay less for the same maturity amount. The remaining investors will now buy Tata Realty bonds as it gives them higher returns.

From this we can conclude the following:

• When interest rates rise, bond prices fall and vice-a-versa.

• In a rising interest rate scenario, you shouldn’t invest in long-term bonds. Short-term bonds are ideal when interest rates are rising.

How to Analyse Debt Funds? – 8 Key Factors for Debt Fund Analysis

We are all aware of the Franklin Debt Fund crisis. It’s been nearly two years since six debt funds were wound up. But still lakhs of investors are yet to receive their hard-earned money. Majority of investors invested in these funds simply looking at their superior returns. No one bothered to check the credit rating of Franklin’s debt funds. For example: Franklin India Ultra Short Bond Fund had generated a one-year return of 9%. But look at the credit rating of the fund’s papers:

The fund had 38.78% exposure to below A papers and absolutely 0% exposure to AAA rated papers. Investors got blind sided with shiny returns. But look at their situation now.

To avoid such situations, it is recommended to study the following while analysing a debt fund:

• Modified Duration

  : It measures sensitivity of the underlying bond prices to changes in interest rate. Its calculated in years. Higher the duration, the more sensitive the underlying papers are.

  Liquid funds have shortest modified duration and hence are least sensitive to interest rates. Short-term debt funds have high modified duration than liquid funds. Whereas long-term debt funds have the highest modified duration

  For example:

  • Average modified duration of liquid funds is 0.15 years.

  • Average modified duration of short-term debt funds is 2.18 years.

  • Average modified duration of long-term debt funds is 4.68 years.

  Investors with a low-risk tolerance and a short-term investment horizon should stick with liquid funds or short-term debt funds. Investing in long-term debt funds is not recommended for conservative investors.

• Average Maturity

  : As we saw earlier, your debt fund manager provides loans to various companies. The tenure of these loans can range between 1 day (overnight funds) to 10 years (gilt funds). This is all over the place. Hence average maturity is calculated. It shows the average maturity period of all papers invested in by the debt fund. It is also expressed in years. For example:

  • Average maturity of HDFC Short Term Debt Fund is 3.27 years.

  • Average maturity of HDFC Gilt Fund is 5.48 years.

  An investor with a goal in the next three years shouldn’t invest in HDFC Gilt Funds as its average papers will mature in 5.48 years

• Yield to Maturity (YTM):

  This is the expected returns from a debt fund. It measures how much return a fund will generate if the underlying papers are held till maturity. For example: The YTM of Aditya Birla Sun Life Dynamic Bond Fund is 6.45%. This means that investors can expect to earn 6.45% returns from the scheme. Comparing this with the category average will tell you if your fund is underperforming or beating its benchmark. In the below image, the highlighted funds have lower YTMs than their category. So, investors would make more money by investing in the benchmark index instead.

  Debt Funds	YTM	Category YTM
  Aditya Birla Sun Life Dynamic Bond Fund	6.45%	5.60%
  ICICI Prudential All Seasons Bond Fund	6.17%	5.60%
  IDFC Bond Fund	5.40%	5.85%
  Invesco India Credit Risk Fund	5.09%	6.44%
  BNP Paribas Medium Term Fund	5.07%	5.85%

• Credit Rating:

  This is the most important thing to analyse before investing in a debt fund. Investors should match their risk profile with the funds credit rating. Liquid funds generally invest in treasury bills which are issued by government and hence have high credit rating. On the other hand, credit risk debt funds invest in low rated bonds and are not suitable for conservative investors.
  

• Current Interest Rate Scenario:

  Studying the current interest rate scenario is really important while investing in debt funds. Not all debt funds behave in the same manner to changing interest rates. For example, Gilt funds usually perform better when interest rates are falling. But they generate poor returns when interest rates rise. The below chart shows the returns generated by gilt funds since 2014.

  In 2018-2019, interest rates fell from 6.37% to 5.57%. During the same period, gilt fund returns increased from 7.75% to 13.26%. Due to the pandemic, the Reserve Bank of India (RBI) cut rates to a minimum. Hence gilt funds have generated higher returns. But as soon as RBI starts raising interest rates, gilt funds will go back to generating long-term average return of 7%-9%.

  While investing in debt funds, investors must keep a track of interest rates. As an alternative, investors can invest in dynamic bond funds. Here, the fund manager manages the portfolio dynamically as per changing interest rates.

• Number of Securities:

  Too much of anything is bad. This stands true for diversification. While diversification reduces overall risk, over diversification can dilute the portfolio and your returns.

  For example: IDFC Floating Rate Fund invests in only 17 debt instruments against a category average of 94. This means the fund is extremely under diversified. The fund faces concentration risk. It has invested 11.28% in a floating rate debenture of Axis Bank. Now imagine if for some reason, Axis Bank is unable to repay their debt on maturity. IDFC Floating Rate Fund will have to wipe off 11.28% of its portfolio. Hence avoid funds with over or under diversified portfolios.

• Exposure to Corporate Bonds:

  Corporate Bonds are issued by private companies. Private companies, however big can default. We saw this happen with Anil Ambani led Reliance group, Thomas Cook etc. These companies often issue bonds with 3%-4% additional returns. This is done to lure investors. Some of these papers can have high credit ratings like the Essel Group. But that does not mean they are safe. Any debt fund investing a major portion of its assets in corporate bonds is highly risky. For example: Axis Credit Risk Debt Fund invests 70.61% of its corpus in corporate bonds. This makes the fund extremely risky. This is one of the reasons why it is a 2-star rated fund from RankMF.

• Assets Under Management (AUM):

  For retail investors, it is always recommended to invest in debt funds with large AUM. This way, the fund does not face redemption pressure from investors. Also, funds with small AUM cannot negotiate good rates from issuers. They are forced to accept whatever interest rate the issuer is offering. For example: The AUM of BNP Paribas Medium Term Fund is Rs. 29 crores. Whereas the AUM of ICICI Prudential Medium Term Bond Fund is Rs. 6,542 crores. Hence, it is in a position to negotiate for higher interest rates.

Risks in Debt Funds

Debt funds invest in fixed income securities. But this does not mean that they are risk-free. Debt mutual funds do not face high fluctuations like equity funds. But they have their own set of risks which investors must be aware of before investing. Let us understand some of the biggest risks faced by debt fund investors.

• Credit Risk or Default Risk:

  This is the most common risk faced by debt fund investors. Credit risk arises when the borrower (to whom your fund manager has lent money) is unable to repay principal or interest. For example: Franklin India Income Opportunities fund had invested 6.32% of their corpus in non-convertible debentures (NCDs) of Rivaaz Trade Ventures (RTVL). This is a subsidiary of the Future Group. On maturity, RTVL failed to repay the principal amount. This is credit risk.

  When a company defaults on its payment, the fund can take any of the following two steps:

  • Create a segregated portfolio.

  • Re-value the exposure to Zero.

  In segregated portfolio, the fund manager will remove the 6.32% exposure to RTVL from the fund. It will create a separate portfolio for RTVL exposure. The fund will continue to hold this exposure till the time RTVL repays it.

  In the second approach, the fund will write-off the 6.32% exposure from the books. So, the value of this 6.32% exposure will be become zero immediately.

  Both these approaches are losses for investors. But in case of segregated portfolio, there is still hope that the company will repay the principal. This is not a total immediate loss for investors.

  The best way to avoid credit risk is invest in only AAA rated funds and ensure that the exposure to corporate bonds is balanced by exposure to government bonds.

• Interest Rate Risk:

  This risk is a part and parcel of investing in debt funds. Debt funds and interest rates have an inverse relationship. When interest rates increase, your short-term debt fund will generate lower returns. Interest rates are adjusted every quarter by the RBI. But it is almost impossible for investors to switch their funds every quarter. They can incur exit loads and short-term tax. The best way to manage interest rate risk is to:

  • Invest in Dynamic Bond Fund: These funds invest across short-term, medium-term and long-term papers. Hence, they are able to average their returns in both rising and falling interest rates. But dynamic bond funds are risky and only investors with a time horizon of more than three years should invest in them.

  • Creating an all-weather portfolio: You can further diversify your debt fund portfolio by investing in debt funds of varying maturities. For example: If your time horizon 5 years, you can invest as follows:

    15% in liquid funds, 50% in corporate bond funds, 25% in medium term bond funds and 10% in long term debt funds.

    So, if the interest rate increases and the returns from long term debt funds falls, the superior returns from short term debt funds will even out your returns.

• Market Risks:

  Majority of investors believe that the net asset value (NAV) of debt funds does not fluctuate. This is not true. For example: Taurus Liquid Fund invested Rs 2,000 crores in commercial papers (CPs) of Ballarpur Industries. Credit rating agencies downgraded these CPs. What followed was a blood bath. The fund’s NAV fell by 7.77% in a single day.
  

  While this was a rare event, investors must remember that debt funds are linked to the stock market. So, they will experience fluctuations.

• Concentration Risk:

  This risk arises when the debt fund corpus is invested in limited number of securities. So, a default by a single entity can wipe out 10%-15% of the corpus. Baroda Treasury Advantage Fund had invested 26.87% of its corpus in NCDs of Yes Bank. As Yes Bank was placed under moratorium in 2020, look what happened to Baroda Treasury Advantage Fund.
  

  The fund’s NAV fell from Rs 1,564.30 to Rs 1,222.91 in one day. That’s a fall of 21.82% in a single day. Since the fund had a small AUM and a compact portfolio, its over concentration to Yes Bank NCDs wiped off a major portion of investors' wealth.

  To avoid such situations, investors should ensure that the fund is adequately diversified as per category average. Any big deviations can be a red flag for debt fund investors.

• Reinvestment Risk:

  This risk arises when a fall in interest rate coincides with maturity of debt fund papers. In this case, the fund manager is forced to reinvest the maturity proceeds in a lower interest-bearing instrument.

  For example: Aditya Birla Sun Life Dynamic Bond Fund has invested 4.55% of its corpus in debentures of India Grid Trust 2022 at 9.10% interest. Interest rates have been falling and are expected to fall further. So, the fund manager might not find another instrument providing 9.10% interest. Suppose the same debenture now offers 8% interest. In this case, debt fund investors face 1.10% (9.10%-8%) reinvestment risk. This is a systematic risk and cannot be avoided.

Types of Debt Funds in India

As per the Securities and Exchange Board of India (SEBI), there are 16 types of debt funds in India. They can be divided on the following parameters:

• As per borrower – Private companies or government.

• As per duration – Ultra-short-term, Short-term or long-term

• As per credit rating of papers – Corporate Bond Vs Credit Risk

Let us discuss each of these types of debt funds in detail.

• Types of Debt Funds as per Type of Borrowers: When you invest in a debt fund, you are giving loan to the borrowers. These borrowers can be private companies or the government:

  • Corporate Bond Funds invest minimum 80% of their corpus in bonds issued by private companies only. Credit rating plays a crucial role here. While they generate decent returns (7%-8%), investors should be careful of concentration risk.

  • Gilt Funds invest minimum 80% of their corpus in bonds issued by the government. It can be state, central or even municipal corporations. Gilt funds carry the sovereign guarantee and have zero default risk. But they have long-term maturity (more than 10 years) and hence have high interest rate risks. Gilt fund with 10-year constant duration are suitable for long-term investors only.

  • Banking & PSU Funds invest minimum 80% of their corpus in bonds or debentures issued by banks and public sector units. They also carry minimal default risk but they offer lower returns than gilt funds.

• Type of Debt Funds as per Duration: Debt funds can be divided into the following types based on the tenure of their loans.

  • Overnight Debt Funds invest in instruments which mature in one day. So basically, investors give loan for just one day. The borrowers are mostly banks who need to maintain their balances as per RBI. Overnight debt funds offer lowest returns but are highly safe.
  • Liquid Funds invest in instruments which mature in less than 91 days (three months). They invest in treasury bills, certificates of deposits etc. They are ideal to park your surplus cash. Liquid funds investing in only treasury bills are the safest.
  • Ultra Short-term Funds invest in instruments which mature between three months to six months.
  • Low Duration Funds invest in instruments which mature between six months to a year.
  • Money Market Funds have the freedom to invest in instruments which mature in less than one year.
  • Short term debt funds invest in instruments maturing between one year to three years. They are more volatile than liquid funds but offer higher returns. They are ideal when interest rates are rising.
  • Medium duration debt funds invest in instruments which mature between three to four years. They are ideal when interest rates are sideways. Medium to Long duration debt funds invest in debt instruments which mature between four to seven years. They are ideal for moderately conservative investors with long-term financial goals.
  • Long duration funds are suitable for moderate to aggressive investors. They are highly sensitive to interest rates. They generate superior returns when interest rates are falling.
  • Dynamic bond funds do not have a fixed investment tenure. They can invest in papers maturing in three years to ten years. The fund manager has the freedom to manage the maturities dynamically. They carry high risk but also generate superior returns when interest rates are sideways.
  • Floater Funds are similar to dynamic bond fund as they have the freedom to invest across maturities. They typically invest in a mix of ultra-short term and short-term papers. So, their average maturity stays between 1.5 years and three years.

• Types of Debt Funds as per Credit Ratings: Credit rating agencies assign credit rating to debt fund papers. AAA rated funds are the safest. Based on credit ratings, debt funds are of two types:

  • Corporate Bond Funds can invest in only AAA rated funds. This makes them highly safe. But investors must exercise caution. Credit rating agencies can change their ratings overnight. It happened in the case of Yes Bank, Ballarpur Industries etc. A small credit downgrade resulted in NAVs falling by as much as 22% in a single day.

  • Credit Risk Debt Funds invest 65% of their portfolio in low credit-rated instruments. The goal is to earn higher returns. They are extremely risky, have high default risk and suitable for only aggressive investors. Even performance wise, credit risk debt funds have underperformed corporate bond funds. So, investors have no incentive of investing in credit risk funds.

• Types of Debt Funds as per Lock-in Period: Majority of debt funds are open-ended in nature. This means you can redeem from them anytime. However, there are close-ended debt funds like fixed maturity plans. They have a fixed maturity date before which you cannot sell your units.

  For example: Aditya Birla SL Fixed Term Plan – 1101 Days was launched on 19th June 2018. It will mature in July 2021. So, investors cannot sell their units before that. Recently many FMPs have extended their maturity dates. This is a red flag for investors as it means the fund is unable to get its money back from the borrowers. Hence, retail investors should avoid FMPs.

  Note: Conservative Hybrid Funds are technically hybrid fund. But they invest 75% to 90% of their corpus in debt instruments. So, they are considered to be debt funds and follow debt taxation.

  Performance of Various Types of Debt Mutual Funds in India

  

5 Advantages of Debt Funds

• Superior Returns: Debt funds are known to generate superior returns than bank fixed deposits (FD). The below table shows the performance of bank FDs Vs HDFC Short Term Debt Fund, one of the best debt funds in India. As you can see, debt funds have comfortably beaten bank FDs.

  

  *Assuming a 30% tax bracket and an initial investment of Rs 1 Lakhs.

• High Liquidity: Excluding FMPs, majority of debt funds are highly liquid. The redemption proceeds are credited in your account in T+2 days. T stands for transaction date. So, if you redeem from a debt fund on 1st April 2021, the proceeds will be in your bank account on 3rd April 2021. In case of liquid fund, the proceeds will be available in T+1 day i.e. on 2nd April 2021.

  But certain debt funds do have a lock-in period. Credit risk debt funds have an exit period of up to 540 days. If you redeem before that you need to pay 0.5% to 1% penalty. But overnight funds have no lock-in period. So, you can redeem from them within a day also.

• Tax Efficient: Debt funds are highly tax efficient. Both short term and long-term capital gains can help investors earn better returns. Let’s see how. Mr Ram invested Rs 1 Lakh in HDFC Short Term Debt Fund on 3rd April 2017. He redeemed from the fund on 3rd April 2020. Since he completed three years, he will have to pay long term capital gains tax as follows:

  Particulars	Amount
  Investment Amount	Rs. 1,00,000
  NAV on 3rd April 2017	Rs. 18.01
  Units Received	5,552.90
  NAV on 3rd April 2020	Rs. 22.57
  Current Value	Rs. 1,25,352
  Total Long Term Capital Gains	Rs. 25,352
  CII of 2017-18	272
  CII 2020-21	301
  Indexed Cost of Purchase	Rs. 1,10,662
  Long Term Capital Gains	Rs. 14,691
  Long Term Tax Payable (With Indexation)	Rs. 2,938
  Long Term Tax Payable (Without Indexation)	Rs. 5,070

  Before indexation, the tax payable was Rs 5,070. But after indexation, the tax payable is Rs 2,938. That’s a saving of 42%.

  A small tip for investors in lower tax bracket… If you fall in 5% or 10% tax bracket, then redeem one day before completing three years. This way you don’t have to pay a LTCG of 20%. Similarly, investors in highest tax bracket should plan their redemptions after three years. This way they pay 20% tax instead of 30%.

• Systematic Transfer Plan (STPs): NAV of debt funds are fairly stable. This makes them perfect for lumpsum investments. But lumpsum investment in equity is not recommended. So, investors can invest the lumpsum amount in debt fund and then register a STP. Every month, a fixed amount will automatically flow from debt fund to equity fund. This is a win-win situation for investors. You will earn return on both debt fund and equity fund.

• Regular Income: Debt funds invest in fixed income instruments on which they earn fixed interest. Debt fund investors have two options – they can either reinvest this interest in the scheme (growth option) or withdraw this interest (dividend option). The dividend option is a perfect source of regular income for retirees and senior citizens.

How are Debt Funds Taxed?

There are two types of debt fund taxes:

• Short Term Capital Gains Tax (STCG)
• Long Term Capital Gains Tax (LTCG)

If you sell your debt fund before three years, your gains are considered as short term capital gains. The tax payable is dependent on your income tax slab. If you fall in the 30% tax bracket, then your STCG tax rate is 30%.

If you redeem from your debt fund after three years, you need to pay long term capital gains tax. LTCG on debt funds is 20% post indexation.

4 Things to Consider Before Investing in Debt Funds

Apart from YTM, average maturity and credit rating, investors must consider the following before investing in debt fund:

• Risk Profile:

  Investors must match their risk profile with the risk profile of the debt fund. For example: If you are a conservative investor, then you should not invest in credit risk debt fund. On the other hand, an aggressive investor might get frustrated with the returns of a liquid fund. Hence, it is important to match your risk tolerance to debt fund’s risk.
  

• Investment Horizon:

  Not all types of debt funds are suitable for every investment horizon. Gilt funds generated double digit returns in 2020. But they are not suitable if your investment horizon is less than 3 years. Similarly, liquid funds are quite useless for long-term investors. Hence investors must match their investment horizon with the average maturity of debt fund.

  For example:

  • Average maturity of Axis Corporate Debt Fund is 2.37 years.
  • Average maturity of IDFC Government Securities Fund is 8.67 years.

  If your investment horizon is 10 years, then you shouldn’t invest in Axis Corporate Debt Fund. Always match your investment horizon with the fund’s average maturity.

  How to Choose a Debt Fund Based on Investment Horizon

  

• Exit Load:

  Suppose your kids’ graduation is the next 18 months. You withdraw your equity funds corpus and shifted to debt. You decide to invest in credit risk debt fund as it has given 9.98% returns in the last one year. You redeem the fund in the 16th months. To your surprise the AMC charged you 0.5% of the fund value as exit load. You could prevent this penalty by matching your investment horizon with the funds exit load period.

• Expense Ratio:

  This is the fee that investors pay to debt fund managers. It is adjusted in the funds NAV. A high expense ratio directly reduces the schemes return. SEBI has capped maximum expense ratio of mutual funds at 2.25%. Ideally investors should ensure that the fund’s expense ratio is in line with its peers.

  For example:

  • Aditya Birla SL Corporate Bond Fund is a 5-star rated fund. Its expense ratio is 0.46%.
  • Even Nippon India Corporate Bond Fund is a 5-star rated fund. But its expense ratio is 0.64%.

  Investors should always check a debt funds expense ratio before investing. Even if it is a 5-star rated fund.

• Growth Option Vs Dividend Option:

  Investors in high tax bracket should invest in growth option and hold it for more than three years. This way, they pay 20% tax instead of 30% STCG tax. Even dividends are taxed as per individual tax slabs. So, high tax slab investors are better off investing in growth option. Investors in lower tax bracket should avoid LTCG as it is costlier.

  Let us now look at the 10 Best Debt Funds in India for 2021

10 Best Debt Funds in India for 2021

We have segregated the below list of best debt funds as per investment horizon. Investors are recommended to match their risk profile with the funds risk profile before investing.

Debt funds are an integral part of the Indian capital markets. They help companies and government raise easy capital and will be in demand perpetually. So, stop ruining your wealth in bank FDs and switch to best debt mutual funds with RankMF today! RankMF is India’s best mutual fund research and investment platform. It rates and ranks all mutual funds in India on more than 20 million parameters. With RankMF, you invest in only the very best mutual funds.

How To Invest in Debt Funds?

You can start investing in debt funds, absolutely FREE of cost by following the below steps:

• Open a FREE RankMF account.

• Access RankMF’s superior research methodology for FREE and select the best debt fund for investment.

• Start investing in the best debt mutual funds in India!