Debt mutual funds are usually known for offering stable returns over time. However, many of these funds have struggled recently to keep up with inflation and fixed deposit (FD) rates. This is causing concern among investors who expect better results from systematic investment plans (SIPs) in this category.
SIP Returns Falling Behind FD Rates
Investing through SIP in debt funds is a popular strategy for those looking to accumulate wealth with moderate risk. These funds generally provide stable returns by investing in fixed-income securities like government bonds, corporate bonds, and treasury bills. However, several funds in the debt category are currently offering 5-year SIP returns that are failing to beat the returns from 5-year FDs, which are traditionally seen as a safer investment option.
Fund Performance: A Closer Look
Here are some debt mutual funds whose 5-year SIP returns have fallen short:
- Nippon India ETF Nifty 1D Rate Liquid BeES
- 5-year SIP return: 4.68%
- Total Investment: Rs 6,00,000 (over 5 years)
- Value after 5 years: Rs 6,75,359
- Annualized return since launch: 5.84%
- Expense Ratio: 0.69%
- Franklin India Short-Term Income Plan
- 5-year SIP return: 4.81%
- Total Investment: Rs 6,00,000
- Value after 5 years: Rs 6,77,582
- Annualized return since launch: 7.12%
- Total AUM: Rs 13 crore
- DSP NIFTY 1D Rate Liquid ETF
- 5-year SIP return: 5.18%
- Total Investment: Rs 6,00,000
- Value after 5 years: Rs 6,83,942
- Annualized return since launch: 4.82%
- Expense Ratio: 0.35%
- ICICI Prudential BSE Liquid Rate ETF
- 5-year SIP return: 5.24%
- Total Investment: Rs 6,00,000
- Value after 5 years: Rs 6,85,025
- Annualized return since launch: 4.68%
- Total AUM: Rs 3244 crore
- Sundaram Medium Duration Fund
- 5-year SIP return: 5.33%
- Total Investment: Rs 6,00,000
- Value after 5 years: Rs 6,86,570
- Annualized return since launch: 6.91%
- Expense Ratio: 1.26%
(Source: Value Research)
These returns are significantly lower than what some 5-year FDs offer today, leading to disappointment among many investors who had hoped for higher returns in the long run.
Understanding Debt Funds
Debt mutual funds invest in fixed-income instruments like government securities, treasury bills, corporate bonds, and money market instruments. These investments typically offer pre-determined interest rates and maturity, which is why they are considered safer than equity-based funds. However, market fluctuations may still affect returns, especially in shorter durations.
While debt funds carry slightly higher risks than fixed deposits, they also offer the potential for better long-term returns. Many investors choose debt funds over FDs due to their flexibility, tax benefits, and potential for higher gains.
Is SIP in Debt Funds Worth It?
SIPs are a preferred choice for many investors because they allow regular investments without the need for timing the market. Over the long term, SIPs in debt funds have often been able to beat FD returns. However, recent trends suggest that this may not always be the case, especially in funds where the returns are currently lower than FD rates.
For conservative investors looking for safe returns, FDs might still be the better option in the current scenario. On the other hand, those willing to accept a little more risk for potentially higher returns in the future may continue with SIPs in debt funds.
Key Takeaways for Investors
If you’re considering debt mutual funds through SIPs, it’s important to regularly track the performance of your investments. While these funds typically offer more stability than equity funds, not all debt funds are the same. Factors like expense ratio, fund performance, and overall market conditions can impact the returns you receive.
Investors should also remember that while recent returns may have been lower, debt funds could still outperform FDs over a longer time horizon, depending on market conditions and the types of instruments the fund invests in.
