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Less risk, consistent returns: SIPs work in debt funds too. Here’s the proof

Those who want fixed-income assets as part of their portfolio or create an emergency corpus can consider starting SIP in the debt funds that are part of MC30

March 10, 2022 / 09:33 AM IST
Systematic Investment Plans (SIP) have become a popular investment route among the mutual fund investors. While most of us prefer running SIP in equity funds, we often ignore the benefit of doing SIP in debt mutual funds. Despite the fact that the debt mutual funds are not so as volatile as equity counterparts, the former too has to go through the volatile phases like falling and rising interest rates. As the NAV fluctuates across phases, the SIP investors have the opportunity to bring down their average cost of investment in the debt funds. Investors who want fixed income assets as part of their portfolio or create an emergency corpus, can consider start SIP in the debt funds that are part of MC30. MC30, a curated basket of 30 investment worthy mutual funds schemes, suited for any type of investors. MC30 includes eight debt schemes across three main debt funds categories viz. short duration funds, corporate bond funds and banking and PSU debt funds. They have proven track record and managed with high quality portfolio.
Systematic Investment Plans (SIPs) have become a popular investment route for mutual fund investors. While most of us prefer running SIP in equity funds, we often ignore the benefits of SIP in debt mutual funds. Despite the fact that debt mutual funds are not as volatile as their equity counterparts, they go through volatile phases like falling and rising interest rates. As the NAV fluctuates across phases, SIP investors have the opportunity to bring down their average cost of investment in debt funds. Those who want fixed-income assets as part of their portfolio or create an emergency corpus can consider starting SIP in the debt funds that are part of MC30. The curated basket of 30 investment-worthy mutual funds schemes, suited for all types of investors, includes eight debt schemes across three main debt funds categories such as short-duration funds, corporate-bond funds and banking and PSU debt funds. They have a proven track record and managed with a high-quality portfolio.
Through Rupee Cost Averaging, SIPs ensure that volatility of the investment is reduced over the tenure of the investment. Long duration funds like gilt funds, long duration funds and dynamic bond funds exhibit relatively higher volatility among debt funds as they are more prone to interest rate risk. Meanwhile, accrual funds and short duration funds put-up lower volatility in their NAV movement as they are relatively less prone to the interest rate movement. Debt schemes that are managed with moderate duration strategy and high quality portfolio are part of MC30. To know more about MC30, click here. Below charts portray the 3-year SIP performance (XIRR %).
Through Rupee Cost Averaging, SIPs ensure that the volatility of the investment is reduced over the tenure of the investment. Long-duration funds like gilt funds, long-duration funds and dynamic bond funds exhibit relatively higher volatility among debt funds as they are more prone to interest rate risk. Accrual funds and short-duration funds see lower volatility in their NAV movement as they are relatively less prone to the interest rate movement. Debt schemes that are managed with a moderate duration strategy and high-quality portfolio are part of MC30. To know more about MC30, click here. The charts below show the three-year SIP performance (XIRR %).
Axis Short Term Fund (ASTF) has been a consistent performer that doesn’t take credit risk. Aside from investing in highly-rated bonds, it allocates to g-secs too, to earn some extra returns.
Axis Short Term Fund (ASTF) has been a consistent performer that doesn’t take credit risk. Apart from investing in highly-rated bonds, it allocates to G-secs too to earn some extra returns.
HDFC Short Term Debt Fund (HSTF) maintains the portfolio duration between one and three years. It invests over 80 percent of its corpus in the highest rated instruments; around six percent gets allocated to AA rated and equivalent papers.
HDFC Short Term Debt Fund (HSTF) maintains the portfolio duration between one and three years. It invests over 80 percent of its corpus in the highest rated instruments. Around 6 percent gets allocated to AA rated and equivalent papers.
ICICI Prudential Short Term Fund (ISTF) is managed actively to ensure reasonable returns, without compromising on portfolio quality. Apart from investing in g-secs opportunistically, it invests up to 20 percent of its assets in AA rated and equivalent securities.
ICICI Prudential Short Term Fund (ISTF) is managed actively to ensure reasonable returns without compromising on portfolio quality. Apart from investing in G-secs opportunistically, it invests up to 20 percent of its assets in AA rated and equivalent securities.
HDFC Corporate Bond Fund (HCBF) rewarded investors with its good performance. HCBF has consistently deployed nearly all its corpus in highly-rated (AA+ and above) securities. Its prudent risk control strategy helped HCBF navigate the debt fund crisis, successfully. HCBF aims to generate returns mainly through interest accruals.
HDFC Corporate Bond Fund (HCBF) rewarded investors with its good performance. HCBF has consistently deployed nearly all its corpus in highly-rated (AA+ and above) securities. Its prudent risk-control strategy helped HCBF navigate the debt fund crisis successfully. HCBF aims to generate returns mainly through interest accruals.
Sundaram Corporate Bond Fund (SCBF) has consistently invested nearly all of its corpus in AAA securities for the past five years. It invests in securities issued by government-owned firms and private sector companies that come with strong financials. And it prefers those that come with up to a three-year maturity.
Sundaram Corporate Bond Fund (SCBF) has consistently invested nearly all of its corpus in AAA securities. It invests in securities issued by government-owned firms and private sector companies that come with strong financials and it prefers those that come with up to a three-year maturity.
True to the fund house’s aversion to taking credit risk, IDFC Banking and PSU Debt Fund (IBPF) has consistently held a high-quality portfolio. Almost its entire portfolio comprises AAA and equivalent rated instruments over the last three years. This mitigates the overall credit risk in the portfolio. It also avoids AT1 bonds.
True to the fund house’s aversion to credit risk, IDFC Banking and PSU Debt Fund (IBPF) has consistently held a high-quality portfolio. Almost its entire portfolio comprises AAA and equivalent rated instruments over the last three years. This mitigates the overall credit risk in the portfolio. It also avoids AT1 bonds.
Kotak Banking and PSU Debt Fund (KBPDF) avoids bonds issued by private-sector firms. Instead, it sticks to securities issued by banks, State-owned firms and g-secs. But it does invest around 12 percent of its assets in AA and equivalent rated securities to earn a returns kicker. Apart from investing in the highly-rated bonds, the scheme has also reduced its risk levels by ensuring a non-concentrated exposure. As per its Dec 2021 portfolio, the most it has invested in a single corporate group is 8.7 percent.
Kotak Banking and PSU Debt Fund (KBPDF) avoids bonds issued by private-sector firms. Instead, it sticks to securities issued by banks, state-owned firms and G-secs but it does invest around 12 percent of its assets in AA and equivalent rated securities to earn a returns kicker. Apart from investing in highly rated bonds, the scheme has also reduced its risk levels by ensuring a non-concentrated exposure. As per its December 2021 portfolio, the most it has invested in a single corporate group is 8.7 percent.
Nippon India Banking & PSU Debt Fund (NBPDF) has been a top quintile scheme in its category across timeframes. Over the last two years, the fund has invested only in the highest AAA rated instruments issued by government-owned firms and banks. But it also tactically invests around 20 percent in g-secs to use interest rate movements to its advantage. The fund also invests a small portion in private corporate firms that come with strong financials.
Nippon India Banking & PSU Debt Fund (NBPDF) has been a top quintile scheme in its category across timeframes. Over the last two years, the fund has invested only in the highest AAA rated instruments issued by government-owned firms and banks. But it also tactically invests around 20 percent in G-secs to use interest rate movements to its advantage. The fund also invests a small portion in private corporate firms that come with strong financials.
Dhuraivel Gunasekaran
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