Debt funds are the mutual funds which invest in fixed income securities like bonds, treasury bills, commercial paper, government securities etc.

They are preferred by investors looking for regular interest income along with capital appreciation. Generally, debt funds provide a stable return but lower as compared to equity funds.

Types of debt funds range from ultra-short duration funds, short-term, medium-term debt funds.

Are Debt Funds Really Ideal for Long-Term?

Well, if you are a seasoned investor, you must be wondering why we’re talking about investing in debt funds for a long-term duration. Yes, it’s true that debt funds are more suitable for a short-term purpose, but some of you are not willing to take the risk.

Those investors may consider investing in debt funds, as they reduce risk and are relatively stable in nature, as compared to equity funds.

We still suggest that if you have a longer investment horizon, equity funds should be your ideal preference. But if you are a conservative investor and do not want to venture into the equity space, there are debt funds which you can consider.

There are debt funds which may fit the long term bill, due to benefits of indexation, less risk and stability of income.

Some of them have been listed below.

1. Medium Duration Funds

It is an open ended debt scheme that invests in debt/bonds and money market instruments such that the average maturity period is between 3-7 years.

2. Long Duration Debt Funds

It is an open ended debt scheme that invests in debt and money market instruments such that the average maturity period is more than 7 years.

These funds are sensitive to interest rate changes but are less risky, as compared to equity funds.

3. Gilt Funds

These mutual funds mostly invest in government bonds, which makes it the safest investment. These are preferred by investors looking for maximum safety of their money.

Debt Funds You Can Consider for Long-Term
Fund Name 1Y 3Y 5Y Expense Ratio Turnover Ratio Category Risk
Reliance Income Fund - Direct - Growth 13.47% 8.83% 9.51% 0.87% NA Debt
(Medium to Long Duration)
Moderate
LIC MF Bond Fund - Direct - Growth 10.98% 7.45% 8% 0.17% NA Debt
(Medium to Long Duration)
Moderate
Kotak Bond - Direct - Growth 11.21% 7.62% 8.68% 0.83% NA Debt
(Medium to Long Duration)
Moderate
ICICI Prudential Long Term Bond Fund - Direct - Growth 14.45% 9.94% 10.53% 1.15% NA Debt
(Long Duration)
Moderate
Reliance Nivesh Lakshya Fund - Direct - Growth NA NA NA 0.21% NA Debt
(Long Duration)
Moderate
IDFC Bond Fund - Long Term Fund - Direct - Growth 12.5% 8.88% 9.66% 1.15% NA Debt
(Long Duration)
Moderate
SBI Magnum Constant Maturity Fund - Direct - Growth 14.13% 10.56% 10.75% 0.34% NA Debt
(Gilt)
Moderately Low
Reliance Gilt Securities Fund - Direct - Growth 15.05% 10.97% 11.74% 0.69% NA Debt
(Gilt)
Moderate
Kotak Gilt - Investment Plan - Growth 13.37% 8.99% 10.15% 0.46% NA Debt
(Gilt)
Moderate

A. Medium to Long Term Duration

1. Reliance Income Fund – Direct Plan – Growth

 

Key Details

Investment Objective The objective of the fund is generating optimal returns along with capital appreciation while maintaining moderate risk. The fund makes investment in Debt & Money Market Instruments.
Fund Type Open Ended
Fund Manager  Mr. Prashant Pimple (Since Oct 2008)​
Benchmark NIFTY Medium to Long Duration Debt Index

 2. LIC MF Bond Fund – Direct Plan – Growth

Key Details

Investment Objective The fund aims at generating attractive returns for the investors by investing in a portfolio.
Fund Type Open Ended
Fund Manager Mr. Marzban Irani
Benchmark CRISIL Composite Bond Fund Index

 3. Kotak Bond – Direct Plan – Growth

Key Details

Investment Objective The objective of the fund is to spread the risk by investing in debt and money market instruments with different maturities.
Fund Type Open Ended
Fund Manager Mr. Abhishek Bisen
Benchmark NIFTY Medium to Long Duration Debt

B. Long Duration Debt Funds

4. ICICI Prudential Long Term Bond Fund- Direct Plan – Growth

Key Details

Investment Objective The fund aims to maintain balance of yield, safety and liquidity while generating income by investing in various debt and money market instruments.
Fund Type Open Ended
Fund Manager Mr. Manish Banthia
Benchmark NIFTY Long Duration Debt TRI

2.Reliance Nivesh Lakshya Fund – Direct Plan – Growth

Key Details

Investment Objective The objective of the fund is to maintain moderate level of risk and generate optimal returns accompanied by capital appreciation of the portfolio.
Fund Type Open Ended
Fund Manager Mr. Prashant R Pimple & Miss. Kinjal Desai
Benchmark CRISIL Long Term Debt

3. IDFC Bond Fund – Long Term Fund – Direct – Growth

Key Details

Investment Objective The objective of the scheme is to generate optimal returns over long term by investing in various debt and money market instruments.
Fund Type Open Ended
Fund Manager Mr. Suyash Choudhary
Benchmark CRISIL Composite Bond

C. Gilt Funds

1.SBI Magnum Constant Maturity Fund – Direct Plan – Growth

Key Details

Investment Objective The fund invests predominantly in Government securities issued by the Central Government and/or State Government to generate returns such that the average maturity of the portfolio is 10 years.
Fund Type Open Ended
Fund Manager Mr. Mahak Khabia
Benchmark CRISIL 10-Year Gilt

2. Reliance Gilt Securities Fund – Direct – Growth

Key Details

Investment Objective The fund invests in portfolio of securities, issued and guaranteed by the Central and State Government to generate optimal credit risk-free returns.
Fund Type Open Ended
Fund Manager Mr. Prashant R Pimple
Benchmark CRISIL Dynamic Gilt TRI

3. Kotak Gilt – Investment Plan – Direct – Growth

Key Details

Investment Objective The fund invests in sovereign securities to generate risk-free returns along with providing regular dividend payouts. In order to meet the liquidity requirements some part of the fund will be invested in inter bank money market.
Fund Type Open Ended
Fund Manager Mr. Abhishek Bisen
Benchmark NIFTY All Duration G-Sec

Conclusion

There are a plethora of parameters that need to be considered when investing in a debt fund, which will  cater to all these needs.

Although there is no denying that short-term debt funds are more popular, but as mentioned earlier, if you think that equity might not be the best option for you, you can consider these funds.

Happy Investing!

Disclaimer: The views expressed in this post are that of the author and not those of Groww