Investing in debt funds has always been a popular investment option among conservative investors who prefer low-risk investment strategies. In recent years, there has been a significant shift in the investment landscape with the emergence of innovative types of funds that offer a unique blend of returns and risk. In this article, we will discuss the innovative types of funds that are redefining investment strategies.
1. Overnight Funds:
As the name suggests, overnight funds invest in debt securities with a maturity of one day. The primary objective of these funds is to provide a low-risk investment option with higher returns than savings accounts and fixed deposits. These funds are ideal for investors who have surplus cash and want to earn a decent return overnight without taking any market risk. The returns on overnight funds are benchmarked against the overnight MIBOR (Mumbai Inter-Bank Offer Rate), and the current average return on overnight funds is around 3.5%. The best debt funds in this category are IDBI Overnight Fund, Kotak Overnight Fund, and Axis Overnight Fund.
2. Credit Risk Funds:
Credit risk funds invest in lower-rated debt securities, which carry a higher credit risk. These funds offer higher returns than other debt funds but are also riskier. The primary objective of credit risk funds is to generate long-term capital appreciation and income by investing in lower-rated debt securities. The returns on credit risk funds are benchmarked against the CRISIL Short-Term Bond Fund Index, and the current average return on credit risk funds is around 7.5%. The best debt funds in this category are HDFC Credit Risk Debt Fund, Franklin India Credit Risk Fund, and Kotak Credit Risk Fund.
3. Corporate Bond Funds:
Corporate Bond Funds invest in higher-rated corporate debt securities, which offer higher returns than government securities but carry a lower credit risk than credit risk funds. The primary objective of these funds is to generate long-term capital appreciation and income by investing in higher-rated corporate debt securities. The returns on corporate bond funds are benchmarked against the CRISIL Composite Bond Fund Index, and the current average return on corporate bond funds is around 8%. The best debt funds in this category are Franklin India Corporate Bond Fund, HDFC Corporate Bond Fund, and Aditya Birla Sun Life Corporate Bond Fund.
4. Dynamic Bond Funds:
Dynamic Bond Funds invest in a mix of government securities, corporate debt securities, and money market instruments. These funds have the flexibility to adjust their portfolio based on changing interest rates, credit ratings, and economic conditions. The primary objective of dynamic bond funds is to generate long-term capital appreciation and income by investing in a mix of debt securities. The returns on dynamic bond funds are benchmarked against the CRISIL Composite Bond Fund Index, and the current average return on dynamic bond funds is around 9%. The best debt funds in this category are ICICI Prudential Long Term Bond Fund, HDFC Dynamic Debt Fund, and Aditya Birla Sun Life Dynamic Bond Fund.
5. Gilt Funds:
Gilt Funds invest in government securities, which carry zero credit risk and offer stable returns. The primary objective of gilt funds is to generate long-term capital appreciation and income by investing in government securities. The returns on gilt funds are benchmarked against the CRISIL 10-Year Gilt Index, and the current average return on gilt funds is around 8%. The best debt funds in this category are the SBI Magnum Gilt Fund, UTI Gilt Fund, and Nippon India Gilt Securities Fund.
In conclusion, the above-mentioned innovative types of funds are redefining investment strategies by offering a unique blend of returns and risk. Investors must gauge all the pros and cons of trading in the Indian financial market before investing in any of the funds mentioned above. The best debt funds may vary based on the investor’s risk appetite, investment objective, and investment horizon. It is advisable to consult a financial advisor before investing in any of the above-mentioned funds to understand the risks associated with the investment and to make an informed decision.
