Top 5 Best Long Term Bond Funds 2023

12 January 2023
5 min read

A Bond refers to investments predominantly made in bonds and other debt instruments, including mortgage-backed securities as well as government, corporate, municipal, and convertible bonds.

A Mutual Fund that only invests in bonds is referred to as a Bond Fund or debt fund. Compared to buying individual bonds, it may be a more effective way to invest in bonds. They have a principal repayment maturity date. Monthly payments must be made for the interest.

Bond Funds offer investors immediate diversification for a small required minimum investment. A long-term bond has a higher interest rate risk than a short-term bond because of the inverse association between interest rates and bond prices.

Additionally, investors who are content with the market's fluctuating interest rates can proceed with these investments. In this blog, we have compiled a list of the top 5 long term Bond Funds for 2023.

Best Long Term Bond Funds

S.No. 

Long Term Bonds

1.

Tata Income Fund Direct-Growth

2.

ICICI Prudential Long-Term Bond Fund Direct-Plan-Growth

3.

Nippon India Income Fund (Growth)

4.

UTI Bond Fund Direct-Growth

5.

LIC MF Bond Fund Growth

Factors to Consider Before Investing in Bond Funds

  • Interest Rate Risk

The desirability of bond funds would be significantly impacted by the interest rate environment. Previously announced bonds would be worth more than newly issued bonds in an environment with declining interest rates. Because investors prefer investing in newly issued bonds with higher rates, the valuation of earlier issued bonds decreases as interest rates rise.

Bond funds provide simplicity, reliable income, high liquidity, low risk, and fairly predictable returns. The benefit of indexation, which becomes available for debt funds after three years, enables investments that are tax-efficient.

  • Expense Ratio

The total cost of all expenses incurred during the debt fund scheme's operation is the cost ratio. Since debt funds have lower yields or upside potential than equity mutual funds, the expense ratio is more important.

  1. Portfolio of Credit Risk

Debt funds are vulnerable to credit risk as well as interest rate risk. Debt securities are rated by credit rating agencies based on the issuer's financial strength and ability to repay.

AAA-rated fixed income securities are considered the "best" and have the lowest credit risk. Securities with a low credit rating, such as a 'C,' are prone to default.

  • Timeframe

Bond funds are more susceptible to changes in interest rates. In general, there is an inverse relationship between bond prices and interest rates. The modified period essentially measures how sensitive a debt fund's price is to changes in interest rates. It illustrates how rising interest rates affect debt funds' NAV.

The bond fund is more susceptible to increases in interest rates the longer the modified period is, and vice versa.

  • Maturity

The yield to maturity of a bond fund is the anticipated return rate assuming that all of the securities within the portfolio are held until maturity. The investor would profit 9% if the portfolio remained the same until all of the assets in the portfolio reached maturity, for instance, if the yield to maturity of a debt fund was 9%.

On the other hand, if the fund manager employs assertive investment portfolios as a strategy, yield until maturity is not a trustworthy predictor of returns.

Performance of the Best Bonds to Invest in India

1) Tata Income Fund Direct-Growth

The Scheme seeks to provide income distribution/capital appreciation over the medium to long term. The fund has generated returns higher than the benchmark - CRISIL Medium to Long Duration Fund All Index - in the last 3Y. The exit load is zero. The average credit rating of the fund's holdings is AAA. This fund has holdings of the highest quality.

2) ICICI Prudential Long-Term Bond Fund Direct-Plan-Growth

The scheme seeks to generate regular returns by putting around 75 per cent of the investments in debt instruments, and the balance in money market instruments. The plan aims to maintain the optimum balance of yield, safety, and liquidity. It is a Consistently top-ranked fund. The exit load is zero. The average credit rating of the fund's holdings is AAA. This fund has holdings of the highest quality.

3) Nippon India Income Fund (Growth)

Nippon India Income Fund (Growth) is a Debt Mutual Fund Scheme launched by Nippon India Mutual Fund. This scheme was made available to investors on 30 Jun 1995. Prashant R.Pimple is the Current Fund Manager of the Nippon India Income Fund (Growth) fund.

The scheme aims to generate a capital appreciation of the portfolio and optimal returns consistent with moderate risk. The scheme will predominantly invest in debt instruments, while money market investment can also go up to 50 per cent.

4) UTI Bond Fund Direct-Growth

The scheme seeks to generate optimal returns with adequate liquidity by investing in debt and money market instruments such that the Macaulay duration of the portfolio is between 4 years and 7 years. The fund has generated returns higher than the benchmark - CRISIL Medium to Long Duration Fund All Index - in the last 3Y.

5) LIC MF Bond Fund Growth

LIC MF Bond Fund Growth is a Debt Mutual Fund Scheme launched by LIC Mutual Fund. This scheme was made available to investors on 20 April 1994. Maraban Iran is the Current Fund Manager of the LIC MF Bond Fund Growth fund.

The scheme endeavours to generate an attractive return by investing predominantly in quality debt and money market securities. The scheme may also take a 20 per cent exposure to equity.

Conclusion

Bond Funds are mutual funds that place a sizable portion of their capital in fixed-income securities like treasury bills, corporate bonds, government securities, and debentures. They diversify through different kinds of securities in an effort to maximize returns, producing respectable returns.

For cautious investors, Bond mutual fund returns are a good choice because they are typically stable. We hope that this blog will be useful to you in learning more about the top long-term bond funds for 2023.

Disclaimer: This blog is solely for educational purposes. The securities/investments quoted here are not recommendatory.

To read the RA disclaimer, please click here
Research Analyst - Bavadharini KS

Disclaimer

The stocks mentioned in this article are not recommendations. Please conduct your own research and due diligence before investing. Investment in securities market are subject to market risks, read all the related documents carefully before investing. Please read the Risk Disclosure documents carefully before investing in Equity Shares, Derivatives, Mutual fund, and/or other instruments traded on the Stock Exchanges. As investments are subject to market risks and price fluctuation risk, there is no assurance or guarantee that the investment objectives shall be achieved. NBT do not guarantee any assured returns on any investments. Past performance of securities/instruments is not indicative of their future performance.
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