FD vs Debt Fund Returns : People who do not want to take the risk of investing in the equity market or are looking for stable returns generally turn to bank FDs. But the interest rates available on 1 year fixed deposits remain very low. Major banks generally do not give more than 7 percent interest on one year FD. Even in small scheduled banks, interest is not more than 8-8.50 percent on 1 year FD. In such a situation, debt fund is also an option to get stable income. Statistics show that in the last one year, long duration debt funds have given returns beating bank FDs.
What are long duration debt funds?
According to SEBI definition, the portfolio of Long Duration Debt Fund includes debt and money market instruments. For these funds, the Macaulay duration of the portfolio must be more than 7 years. Macaulay duration is the time or period it takes to repay the initial investment made in a bond through the cash flow i.e. returns received from it. In simple words, the portfolio of a long duration debt fund mostly consists of debt assets with long term maturity.
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Better performance of long duration debt funds
In the last one year, the returns of long duration debt funds have been much better than bank FDs. All the schemes falling in the category of long duration debt funds have generally given higher returns than bank FDs in the last 1 year, while the 1 year returns of the top 5 funds have been 11 percent or more. You can see the 1 year returns of top 5 long duration debt funds here.
1. Nippon India Nivesh Lakshya Fund
Fund return in 1 year: 11.39%
Benchmark return in 1 year: 9.50%
Assets Under Management (AUM): Rs 9,308.07 crore
2. HDFC Long Duration Debt Fund
Fund return in 1 year: 11.36%
Benchmark return in 1 year: 10.95%
Assets Under Management (AUM): Rs 5,596.01 crore
3. SBI Long Duration Fund
Fund return in 1 year: 11.33%
Benchmark return in 1 year: 9.50%
Assets Under Management (AUM): Rs 2,765.60 crore
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4. Axis Long Duration Fund
Fund return in 1 year: 11.16%
Benchmark return in 1 year: 10.95%
Assets Under Management (AUM): Rs 522.39 crore
5. Aditya Birla Sun Life Long Duration Fund
Fund return in 1 year: 11.10%
Benchmark return in 1 year: 10.95%
Assets Under Management (AUM): Rs 155.10 crore
(Source: AMFI)
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The entire category gave better returns
Apart from the top 5 funds that we have given above, details of two more funds are available on the website of Association of Mutual Funds in India (AMFI) in the category of Long Duration Debt Funds. These funds are UTI Long Duration Fund and ICICI Prudential Long Term Bond Fund. According to AMFI data, in the last 1 year, the direct plan of UTI Long Duration Fund has given 10.87% return and the direct plan of ICICI Pru Long Term Bond Fund has given 10.47% return in the last 1 year. These returns are also much better than the interest generally received on bank FD for a period of 1 year.
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How safe is investing in debt funds?
The risk level of all long duration debt funds is moderate, which shows that investing in them is comparatively less risky. All the figures given above are of direct plan. The returns of regular plans are slightly less in comparison to these. The two benchmark indices of these funds are 1. NIFTY Long Duration Debt A-III Index, whose 1 year return is 10.95% and 2. CRISIL Long Duration Debt A-III Index, whose 1 year return is 9.50%. This means that most of the long duration debt funds have given better returns than the benchmark in the last 1 year. Keeping in mind the moderate risk and flexibility in investment period, overall it can be called an attractive option for investing in debt.
(Disclaimer: The purpose of this article is only to provide information, not to give investment advice. The past returns of a mutual fund do not guarantee that it will continue in the future. Take investment decisions only after consulting your investment advisor.)
