Debt mutual funds are being chosen by investors for their higher returns over traditional favorites such as fixed deposits and better tax efficiency. And, calendar year 2022 is good for investors who have reposed their faith in debt funds. Category-wise, credit risk funds topped the chart, followed by fixed maturity schemes, liquid funds, overnight funds. At the individual fund level, the best debt funds of 2022 have returned 10 to 25 percent. At the other end of the spectrum, long-duration, domes and target maturities have lagged, returning 2-3% this year to date.
Date with debt categories
Credit risk funds, for the second year in a row, outperformed. In 2022 YTD, credit risk funds contributed average returns of over 13 percent. In 2021, the category’s average profit was 8.7 percent.
Returns of other top-performing debt fund categories were normal — fixed maturity funds (4.59 per cent), liquid funds (4.51 per cent), overnight funds (4.39 per cent). In the year The 2nd best performing debt medium duration funds in 2021 are on the delayed list. Here is a chart on the best performing debt MF categories of 2022.
By 2022, the deferred debt fund platform will include gilts with 10-year fixed tenure funds, long tenure funds, gilt funds, target maturity funds, medium to long tenure funds and corporate bond funds. None of these categories returned even an average of 3 percent. Many of these categories have done very well in 2020, and have average NAV returns of more than 10 percent. Volatility bond funds, bank and PSU debt funds and medium duration funds have recorded average returns of 3-4 per cent in 2022. Here is the deferred chart of debt MFs for CY2022.
Note that category average returns can be affected by a small portion of funds. Average return numbers should serve as a guidepost.
Why should you pay debt?
Taking advantage of opportunities in the debt market requires a proactive strategy and here are some ways investors can do it.
The best funds in focus
Year-to-date better debt funds alone, multi-diversified portfolios, hedge funds etc. As a result of the sudden change in NAV, impressive return statistics come into the picture. These include Nippon India’s Strategic Debt Diversified Portfolio (over 297 percent), UTI Credit Risk Diversified Portfolio 2 (also 297 percent), Bank of India Credit Risk (over 143 percent) etc.
The top 3 best performing debt funds of 2022 are ABSL Medium Term (up 25.64 percent), UTI Bond (up 10.25 percent) and DSP Credit Risk (up 9.93 percent). These funds yielded 7.69%, 9.85% and 3.74% in CY2021. Other top performing debt MFs for 2022 include ABSL Credit Risk, ABSL Dynamic Bond, ICICI Pru Credit Risk, ICICI Pru ST, Baroda BNP Paribas Credit Risk, ICICI Pru All Seasons Bond and Nippon India Ultra Short Duration. All these have generated YTD returns of 5-8 percent. Here is a chart on them.
In the year By 2022, deferred debt MFs, in line with category averages, gilt funds, funds with good long-duration exposures, etc. They failed to generate even 2 percent this year. We have ignored funds like ABSL Dynamic Bond Segregated Portfolio 1, ABSL Credit Risk Segregated Portfolio 1 and ABSL Medium Term Segregated Portfolio 1.
Although convertible bond funds have the flexibility to change portfolio positions according to changing market conditions, some convertible bonds are also on the deferred list due to gilt exposure. Here’s a chart on the poor performers of the debt MF universe for 2022.
It should be noted that debt is an important part of an individual’s portfolio because it brings stability. Don’t look at annual performances and use them as an integral part of your investment decision-making system.