Best Debt Mutual Funds

Motilal Oswal Mutual Fund was incorporated in 2008 to provide investment solutions to retail investors in India. The asset management company (AMC) has a QAAUM of roughly Rs.25763 crore for the quarter ending March 2021. Its product offering includes more than 20 mutual fund schemes across different categories, such as equity, debt and hybrid. 

The best Motilal Oswal debt mutual funds comprise different types of schemes to fulfil the investment objective of investors. Investing, in general, can be complicated, and there are no readymade solutions. Hence, before knowing the various factors to consider when choosing a fund, it's vital for individuals to understand the concept behind debt mutual funds. 

Debt funds primarily invest in fixed-income securities, such as debentures, government securities, commercial papers, certificates of deposits, treasury bills, and other money market instruments. Contrary to equity schemes, the top Motilal Oswal debt mutual funds are associated with low risk as their performance is not impacted by market fluctuations. Hence, these funds are known to be suitable for investors who are looking for stability and higher returns than bank fixed deposits. 

Based on the Macaulay duration and the issuer of the underlying securities, debt funds are of various types, like the gilt fund, low duration funds, credit risk funds, liquid funds, overnight funds, etc. The tax applicable on the returns on these schemes depend on the duration for which investors hold their units. 

Taxability

Short-term Capital Gains: When investors sell their units within three years from the date of purchase, the returns realised are known as Short-term Capital Gains (STCG). These gains are added to an individual's taxable income and then taxed per the applicable income tax slab rate. 

Long-term Capital Gains: The returns realised by investors if they sell their units after three years from the date of purchase are known as Long-term Capital Gains (LTCG). In comparison to STCG, these gains earned on the best Motilal Oswal debt mutual funds are taxed at a flat rate of 20%. In addition to this, investors are eligible for indexation benefits.  

TDS: Investors do not have to pay a TDS on debt funds. 

Factors to Consider Before Investing

Once investors are familiar with the concept of debt funds, they must become aware of the different things to consider before investing in these schemes. So, let's find out what these aspects are. 

Investment objective: Before investing in any of the best Motilal Oswal debt mutual funds 2023, investors need to identify their financial objective. If they are looking for returns similar to equity funds, these schemes might not be an appropriate option for them. That's why individuals need to ensure that the fund's objective is in line with theirs. 

Risk profile: While debt funds are not as risky as equity funds, they are not entirely risk-free. Even the best Motilal Oswal debt mutual funds are associated with different risks, such as interest rate risk, credit risk, inflation risk, liquidity risk, and more. Hence, investors must assess their risk appetite before parting with their savings. 

Expense ratio: Every asset management company imposes a charge on investors to cover the scheme's operating expenses. This maintenance fee is calculated as a small percentage of a fund's overall assets. It includes advertisement costs, the salary of the fund manager, allocation charges and more. Remember, the expense ratio varies from one fund to another and directly impacts the annual returns earned by an investor. Hence, this is a vital factor to consider when searching for the best Motilal Oswal debt mutual fund. 

Interest rate regime: In a falling interest rate regime, the price of bonds issued before will be higher in comparison to the newly issued bonds. That said, in a rising interest rate regime, investors would want to invest in freshly issued bonds. As a result, the price of the bonds that were issued before will fall.

Credit risk of underlying securities: As noted above, debt schemes are associated with credit risk. The portfolio constituents of these funds are rated by credit rating agencies based on the issuer's credit profile. Securities that are rated "AAA" carry low credit risk, whereas fixed-income securities with a "C" rating are associated with high default risk. That's why investors must check the credit ratings of the portfolio constituents before allocating their savings to the best Motilal Oswal debt mutual funds. 

Fund manager's experience: A scheme's performance is directly dependent upon the efficiency of the fund manager. He/she uses specialised skills and advanced risk management techniques to manage the portfolio. Someone with a proven track record will have the ability to overcome any challenge that may come his/her way. Thus, it is vital to consider this aspect before investing in a debt fund.  

Direct or regular plan: While a fund house offers direct plans without third-party involvement, investors have to subscribe to a regular plan via third parties, such as brokers or distributors. That's why in the case of the latter, AMCs have to pay commission. This is why regular plans have a higher expense ratio in comparison to direct plans. Furthermore, they report a lower NAV. 

Past performance of the fund: The past performance of a debt fund schemes gives an idea to investors regarding its performance in different conditions. Moreover, the historical returns of a fund are a reflection of the fund manager's efficiency. Hence, investors must compare the past performance of the different schemes when choosing a particular one. However, one must note that the historical returns are not indicators of the fund's future performance. 

Investment route: There are two ways to invest in the best Motilal Oswal debt mutual funds. Investors can allocate funds to a scheme via a systematic investment plan or choose the lump sum route. By opting for the first mode, they can invest in any debt fund scheme by making fixed payments at regular intervals (monthly, quarterly, yearly, etc.). Nevertheless, the lump sum option allows them to invest the whole amount at one go. To invest via the lump sum mode, one requires at least Rs. 1,000. In comparison, investors need to allocate at least Rs. 500 at fixed intervals to opt for the SIP route.