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What are the top long term as well as short term debt funds where I can park my savings

I want to invest a portion or my savings in debt instruments. Is it suggested to invest online directly? What are the top long-term as well as short-term debt funds. Where I can park my savings and earn guaranteed returns?

Mar 14, 2016 by Rupa Agarwal, Bangalore  |   Mutual Fund

Firstly, you should note that, mutual funds do not give guaranteed returns. But the risks involved in debt fund investments are considerably less than risks involved in equity investments. Further, within debt funds there a variety of products classes with different risk profiles. For example, in liquid funds and ultra-short term debt funds there is virtually no risk or very little risk. These funds can give 7.5 – 8% returns in the current interest environment. The returns can go up or down, depending on the trajectory of yields. On the other extreme, long term debt funds are more risky, but over a 3 year investment horizon can give much higher returns than short term debt funds. Please read our article, Demystifying debt mutual funds to understand the characteristics of different debt fund products. We have discussed top performing short term debt funds in our article, Top 5 short term debt mutual funds in 2015 and top performing long term debt funds in our article, Top 6 long term income funds in 2015. Short term debt funds have little interest rate risk, while long term income funds have interest rate risk. If you want to lock in the current yields, before the RBI announces a rate cut, which is expected next month and may result in yields falling, you can also invest in Fixed Maturity Plans. A number of fixed maturity plan new fund offers are available in the market now. In the current interest rate environment, these funds, especially the ones which will invest in AA or A rated bonds, can give good returns. Debt mutual funds are also more tax friendly than bank fixed deposits. If you invest in debt funds for a period of three years of more, your returns will be taxed at 20% after allowing for indexation benefits.

Whether you invest online directly or invest through a financial advisor depends on your ability to select the right debt fund that is suitable for your needs. If you think you have the required expertise, you can invest online directly. Online direct investments are cheaper and will give you slightly higher returns, but if you select the wrong product that your investment needs may not be met. Investment in liquid or ultra-short term debt funds do not require much research. You have to ensure that the fund has a sufficiently large AUM base and a low expense ratio. Investment in other types of debt funds requires an understanding of their risk return characteristics and some research, because there can be a fairly wide variation in returns between different types of debt funds.

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