4 High-Rated Low-Duration Debt Funds Better Than Fixed Deposits

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Investment
oi-Vipul Das

| Published: Monday, July 12, 2021, 12:59 [IST]

As a result of the record uptrend of the domestic market, equity investors may want to look into alternative safe mutual fund solutions. During the current turbulent market and low-interest rate regime, fixed-income securities can be the bread and butter for equity as well as new investors. When it comes to fixed income categories, debt mutual funds are the best choice than fixed deposits for preferable risk-adjusted returns. Based on your risk profile and investment goal you can invest in a blend of debt funds, but the reason for us to choose low-duration funds to invest in is different. Let’s discuss the 4 best performing low-duration debt mutual funds based on higher ratings/past returns and the reason to invest in them now.

Aditya Birla Sun Life Low Duration Fund Direct Growth

Aditya Birla Sun Life Low Duration Fund Direct-Growth returns over the previous year were 5.40 percent, according to Value Research. It has returned an average of 8.59 percent every year since its inception. The fund’s expense ratio is 0.4 percent, which is comparable to the expense ratios charged by other funds in the same category. GOI, National Bank For Agriculture & Rural Development, Reserve Bank of India, Axis Bank Ltd., and Rural Electrification Corpn. Ltd. are among the fund’s top holdings.

For risk-averse investors, the fund has no lock-in period and no exit load, making it a solid pick. The fund currently has an AUM (Asset Under Management) of Rs 19,096 Cr and the most recent NAV as of 9 July 2021 is Rs 560.03. The fund has been rated low to moderate risk and one can start SIP with Rs 100 per month.

Kotak Low Duration Fund Direct Growth

The fund has a grade of moderate-risk and has been rated 5 star by Value Research. According to Value Research, it has offered an average yearly return of 8.57 percent since its inception. GOI, Reserve Bank of India, Housing Development Finance Corpn. Ltd., Karnataka State, and National Bank For Agriculture & Rural Development are among the top holdings of the fund, and the fund has an expense ratio of 0.41 percent. The fund has no exit load and has an AUM of Rs 13,850 Cr. As of July 9, 2021 the fund’s NAV is Rs 2812.80. With a minimum amount of Rs 1000 one can start SIP under this fund.

HDFC Low Duration Fund Direct Plan Growth

The fund has a low expense ratio of 0.44%, zero exit load, and 1-5 year returns are higher than the category average returns. The one-year growth rate of the fund is 5.88 percent. According to Value Research, it has provided an average yearly return of 8.20 percent since its debut.

Reserve Bank of India, National Bank For Agriculture & Rural Development, Indian Oil Corpn. Ltd., Union Bank of India, and Tata Teleservices Ltd. are among the fund’s top holdings. The debt sector allocation of the fund is allocated between sovereign, financial, and communication.

The fund presently has an asset under management (AUM) of Rs 26,073 Cr and the latest NAV is Rs 48.27 as of 9 July, 2021. One can start SIP in this fund with a minimum monthly contribution of Rs 500.

ICICI Prudential Savings Fund Direct Plan Growth

The fund has an expense ratio of 0.42% and the 3-5 year returns are higher than the category average returns. ICICI Prudential Savings Fund Direct Plan-Growth returns in the previous year were 5.37 percent, according to Value Research. It has returned an average of 8.38 percent per year since its inception.

Reserve Bank of India, Panatone Finvest Ltd, State Bank of India, Indian Oil Corpn. Ltd., and Pipeline Infrastructure (India) Pvt. Ltd. are among the fund’s top holdings. One can SIP in this fund with a minimum of Rs 100 with no exit load. The current AUM of the fund is Rs 32,102 Cr and the most recent NAV of the fund is Rs 425.93 as of 9 July, 2021.

Best Performing Low-Duration Debt Funds In 2021

Here are the best performing low duration debt mutual funds based on ratings and past returns.

Funds 1-year returns 3-year returns 5-year returns Rating by Value Research
Aditya Birla Sun Life Low Duration Fund Direct Growth 5.40% 8.05% 7.94% 5 star
Kotak Low Duration Fund Direct Growth 5.36% 8.03% 8.16% 5 star
HDFC Low Duration Fund Direct Plan Growth 5.88% 7.80% 7.72% 4 star
ICICI Prudential Savings Fund Direct Plan Growth 5.37% 7.76% 7.69% 4 star

Should you invest?

Currently, where the equity market is at a record high, investing in secure debt funds is strongly suggested. And for generating FD like fixed-income, investing in low-duration debt mutual funds for the short-term can be the best bet. Low-duration debt funds are suitable for those who have a short-term personal finance goal of 1 year to 3 years. Among the best and secure short-term investments, low-duration debt mutual funds are mostly preferred by risk-averse investors as they don’t have equity risk. For a tenure of 1 year, low-duration debt funds can give you higher returns than fixed deposits.

According to Value Research, the 1-year average returns of low-duration funds are 6.11%. Whereas the 3-year returns are up to 8.05%. No matter that fixed deposits investments are insured by DICGC up to Rs 5 lakhs, investing for 1-year in a fixed deposit account of leading banks such as SBI would give you a low-interest rate of only 4.40%. But if you keep credit risk, interest rate risk and liquidity risk in mind, low-duration debt funds can give you higher returns than a savings account or fixed deposits in the short term.

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Story first published: Monday, July 12, 2021, 12:59 [IST]

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