Best TATA Debt Mutual Funds

Established in 1994, TATA Mutual Fund provides an extensive range of investment solutions focused on financial planning and wealth creation. The asset management company (AMC) manages funds across the entire risk-return spectrum; its offerings include equity, debt, and hybrid mutual funds. Moreover, it also provides solution-oriented and closed-ended schemes. 

For the quarter ended March 2021, the AMC has a quarterly AUM of approximately Rs.61,684 and offers more than 150 schemes, including the best TATA debt mutual funds. 

Debts funds invest in fixed-income securities, for example, corporate bonds, government securities, commercial paper, certificate of deposits, treasury bills, debentures, etc. They’re known to offer stability to investors by delivering low-risk returns that are higher than bank fixed deposits. Moreover, unlike equity mutual fund schemes, the returns generated by top TATA debt mutual funds are not impacted by stock market fluctuations. 

There are more than 60 types of TATA debt mutual fund schemes. These allocate funds to debt and money market instruments across different Macaulay durations and credit risk spectrum. Schemes that invest in securities with a short maturity period mainly earn from interest payments; whereas, funds with a long Macaulay duration generate earnings from capital gains and interest coupons. 

In comparison to most asset categories, debt instruments are extremely liquid. Investors are able to redeem their units in debt funds at their convenience. Moreover, there are tax benefits in the case of these mutual fund schemes, as TDS is not applicable to debt funds. 

Taxability

Here’s how gains from debt funds are taxed:

Long-term Capital Gains Tax: If an investor sells his/her units in a debt fund after holding them for more than three years, the returns earned from such a sale are termed long-term capital gains (LTCG). A tax rate of 20% is applicable on such gains. Also, investors can avail the indexation benefit. 

Short-term Capital Gains Tax: In case investors sell their holdings before three years from the date of purchase, their returns are added to their taxable income and taxed per the applicable slab rate. 

Factors to Consider Before Investing

Nevertheless, investing can be complicated as different asset classes come with their own set of characteristics. Hence, before individuals invest their savings, they might want to consider certain key things that would help them determine which is the best TATA debt mutual fund scheme for them. Let’s delve into its various aspects. 

Investment goal: Different types of mutual fund schemes have contrasting objectives. While equity mutual funds are known to generate high returns and maximise long-term portfolio value, debt funds offer stability to investors as they are immune to market fluctuations. Thus, for investors, it’s vital to identify their financial goal before parting with their savings. 

Risk appetite: While the best TATA debt mutual funds 2023 are not impacted by market volatility, they are not free of risk. They are associated with credit risk, interest rate risk, inflation risk, etc., unlike bank fixed deposits. Hence, investors must assess their risk profile before buying units of debt mutual funds.

Credit risk of underlying securities: The fixed income securities are rated by credit rating agencies based on the creditworthiness of issuers. Debt instruments that have a AAA rating are associated with the lowest credit risk; whereas, securities with a C rating have high default risk. 

Maturity period: Similar to other schemes of this category, even the best TATA debt mutual funds are impacted by changing interest rates. The longer the Macaulay duration, the more a debt fund will be prone to interest rate changes. In a falling interest rate regime, a debt fund that invests in securities with a long maturity period will perform well. On the flip side, in a rising interest rate regime, a debt fund will potentially do well if the underlying debt instruments have a short Macaulay duration.   

Assets under management (AUM): AUM refers to the market value of investments held by a mutual fund. Debt funds having a high AUM can distribute the fixed expenses of the scheme across its subscribers. That said, AUM or any other factor cannot be the sole reason why you invest or do not invest in a fund.

Expense ratio: This is a maintenance fee that a fund house charges its investors to cover the portfolio management expenses. It includes administrative and operating costs, which includes the salary of a fund manager, advertisement expenses, allocation charges, etc. It varies from one AMC to another and has a direct impact on the returns earned by an investor. Hence, individuals must make sure to compare the expense ratios of the best TATA debt mutual funds when choosing a scheme. 

Trailing performance of a fund: The past performance of a fund doesn’t determine its future returns. However, the historical returns of a scheme can give an idea if the fund has been able to achieve its pre-determined objectives. For investors, it is vital to consider this aspect when figuring out which is the best debt mutual fund for them. 

Direct or regular plan: An investor can opt for a direct plan of a mutual fund scheme without the involvement of any third party such as brokers or distributors. Hence, AMCs do not have to pay any commission, which reduces the expense ratio. On the contrary, regular plans require the involvement of third parties, and thus they have a higher expense ratio. Also, they report a lower NAV in comparison to a regular plan. 

Investment route: Individuals can invest in the best TATA debt mutual funds via two investment routes – SIP and lumpsum. SIP stands for a Systematic Investment Plan, which allows one to invest in a debt fund scheme via fixed instalments pay at regular intervals – monthly, quarterly, annually, etc. Whereas by choosing to invest via the lump sum mode, investors can allocate the entire amount to a scheme all at once.