Performance of Debt

Funds in India

Group 6

S. Contents
No.
1 What are Mutual Funds?

2 Types of Mutual Funds

3 What are Debt Funds?

4 Types of Debt Funds

5 Long term funds

 6 Short term funds

7 Gilt funds

8 Ultra short term funds

9 Credit risk funds

10 Interest rate

11 Conclusion

 What are Mutual Funds

A Mutual Fund is a trust that gathers cash from investors who share a typical monetary
objective, and put the returns in various resource classes, as characterized by the venture
objective. Basically, a shared asset is a monetary mediator, set up to deal with the cash
pooled from the investors everywhere expertly. By pooling cash together in a shared asset,
investors can appreciate economies of scale. They can buy stocks or securities at a much
lower exchanging cost contrasted with direct putting resources into capital business sectors.
The different favourable circumstances are enhancement, stock and bond choice by
specialists, low costs, comfort and adaptability.

An investor in a mutual fund scheme gets units which are per the quantum of cash
contributed by him. These units represent an investor's proportionate proprietorship into the
resources of a plan and his obligation if there should arise an occurrence of misfortune to the
asset is restricted to the degree of the sum contributed by him.
The pooling of assets is the greatest quality for mutual funds. The moderately lower sums
needed for putting into a mutual fund scheme empowers little retail financial specialists to
appreciate the advantages of expert money management and lends access to various business
sectors, which they, in any case, may not have the option to get access to. The investment
specialists who invest the pooled cash in the interest of investors of the plan are known as
'Fund Managers'. These asset supervisors settle on venture choices about the choice of
protections and the extent of speculations to being made into them.

In any case, these choices are represented by specific rules which are chosen by the venture
objective(s), investment example of the plan and are dependent upon administrative
limitations. It is this investment objective and investment design, which likewise controls the
investor in picking the right fund for his investment purpose.

Today, there is an assortment of plans offered by mutual funds in India, which serve various
classes of investors to suit diverse monetary goals, for example, a few plans may give capital
assurance to the danger opposed investor. In contrast, some different plans may accommodate
capital increase by putting resources into mid or little cap fragment of the value market for
the more aggressive investor.

The variety of investment goals and mandates has assisted with grouping and sub-
characterize the plans as needs are. The expansive grouping should be possible at the
resource class levels. Along these lines we have Equity Funds, Debt Funds, Liquid Funds,
Balanced Funds, Gilt Funds and so forth These can be further sub-arranged into various
classifications like mid-cap funds, small cap funds, sector funds, index funds and so on
  Types of Mutual Funds
Mutual Fund schemes can be divided into various classes and subcategories dependent on
their investment objectives or their maturity periods. Mutual Fund schemes can be divided
into three classes depending on their maturity periods.

Open-ended funds: An open-ended fund or scheme is one that is accessible for subscriptions
and redemptions constantly. Investors can conveniently purchase and sell units at Net Asset
Value (NAV) related prices which are announced day by day.

Close-ended funds: A close-ended fund or scheme has a specified maturity period which can
go from a couple of months to a couple of years, for example a half year, 5 years or 7 years.
for example, fund is open for subscription just during a predefined period at the hour of
dispatch of the scheme, which is the New Fund Offer (NFO). Investors can investment
money into the scheme at the time of the NFO, and from that point, they can purchase or sell
the units of the scheme on the stock exchanges where the units must be compulsorily listed.

Interval funds: These schemes are a cross between an open-ended and a close-ended fund.
These schemes are open for both buy and redemption during pre-indicated intervals (viz.
month to month, quarterly, yearly and so on) at the predominant NAV based prices. Interval
funds are fundamentally the same as close-ended funds, yet vary on the accompanying points:
-
i. They are not needed to be listed on the stock exchange, as they have an in-built
redemption window.
ii. They can make a new issue of units during the predefined interval period, at the
predominant NAV based price.
iii. Maturity period isn't defined.

Trade Traded Funds: Exchange Traded Funds or ETFs are basically Index Funds that are
listed and exchanged on trades like stocks. They empower investors to increase wide
exposure to indices on financial exchanges in India and in a few cases in different nations
also. These records, whenever dependent on certain areas/subjects, would consequently
furnish presentation to such areas without breaking a sweat, consistently and at a lower cost
than numerous different types of contributing. For instance, a few ETFs track S&P CNX
Nifty, BSE Sensex and so on Gold ETF are mutual fund schemes where the fundamental
speculation is in actual gold.

Fund of Funds: Fund of Funds (FoF) as the name suggests are schemes which put resources
into other mutual fund schemes. The idea is famous in business sectors where there are some
mutual fund contributions and picking a reasonable scheme as per one's goal is intense.
Similarly, as a mutual fund scheme puts resources into an arrangement of protections, for
example, value, obligation and so on, the hidden investments for a FoF is the units of other
mutual fund scheme(s), either from a similar fund family or from other fund houses or from
funds domiciled outside the nation of origin (known as abroad feeder fund or fund of funds
clarified in detail under segment kinds of value funds).

 Classification based on Investment Objectives

Apart from the above classification, mutual fund schemes can also be classified based on
their investment objectives.
A. Equity Funds: Growth/ Equity oriented schemes are those schemes which
predominantly invest in equity and equity related instruments. The objective of such
schemes is to provide capital appreciation over the medium to long term. These types of
schemes are generally meant for investors with a long-term investment horizon and
with a higher risk appetite.

Type of Equity Funds

i. Diversified Funds
a. Multi-Cap Funds: These funds invest across the market capitalization i.e. in
large, mid and small cap companies.
b. Large Cap: These funds invest predominantly in large companies. Generally,
large cap companies experience a slower growth rate and have much lower risk
than mid cap companies due to their size. They are also known as blue chip
companies.
c. Mid Cap: These funds invest predominantly in mid cap companies. Most mid
cap companies experience higher growth than a large cap company.
 d. Small Cap: Small cap refers to a company that it is relatively new and has lower
market capitalisation. Of the three, small cap companies represent the most
investment risk but also the highest return potential.
e. Tax Saving Fund: These funds are also known as Equity Linked Savings
Schemes (ELSS). In case of ELSS schemes investment upto Rs. 1 lakh qualify for
deductions under Section 80C of the Income tax Act, 1961, however, these
schemes have a lock in period of 3 years.
f. Equity–International: These funds invest in companies of foreign country. The
investment could be specific to a country (like the China, US fund etc.) or
diversified across countries/ region (like Europe, Asia etc.). By seeking exposure
to foreign stocks in portfolio one can spread investment risk and achieve
diversification. AMCs generally tie up with a foreign fund (called ‘Underlying
Fund’) and in India they launch a ‘Feeder Fund’. The money collected in the
feeder fund is invested in the underlying fund. Sometimes AMCs also launch
schemes investing directly in equity securities of international companies. In such
schemes, the local investors invest in rupees for buying the units. The rupees are
converted into foreign currency for investing abroad. Thus, there is an element of
foreign currency risk while investing in such schemes. Also, it should be noted
that tax treatment of international equity funds is similar to debt funds.
g. Equity Income / Dividend Yield Schemes: Dividend yield schemes generally
invest in a well-diversified portfolio of companies with relatively high dividend
yield, which provides a steady stream of cash flows by way of dividend.

ii. Sector Funds:

Sector funds invest in companies in a particular sector. For example, a banking
sector fund will invest only in shares of banking companies.
iii. Thematic funds:
Thematic Funds invest in line with an investment theme. For example, an
infrastructure thematic fund will invest in shares of companies that are directly or
indirectly related to the infrastructure sector.
iv. Arbitrage Funds:
These funds exploit arbitrage opportunities such that the risk is neutralized, but a
return is earned. The arbitrage is sought by taking advantage of a price differential of
the same asset between two or more markets, say, taking advantage of the
 mispricing between the cash and derivatives market. These funds generally have low
risk-return trade-off.

B. Index Funds: Index Funds invests in companies that constitute the index and in the
same proportion, to replicate a specific market index and provide a rate of return over
time that will approximate or match that of the market which they are mirroring subject
to tracking error.

C. Income/ Debt Oriented Funds: Such schemes generally invest in debt securities like
Treasury Bills, Government Securities, Bonds and Debentures etc. They are considered
less risky than equity schemes, but also offer lower returns.

D. Gilt Funds: These funds invest exclusively in Government securities. Government

securities have no default risk. NAVs of these schemes also fluctuate due to changes in
interest rates and other economic factors as is the case with income or debt-oriented
schemes.

E. Money Market/Liquid Funds: These funds aim to provide easy liquidity, preservation
of capital and moderate income. They invest in safer short-term instruments such as
certificates of deposit, commercial paper, etc. These schemes are used mainly by
institutions and individuals to park their surplus funds for short periods of time. These
funds are insulated from changes in the interest rate in the economy and capture the
current yields prevailing in the market.

F. Hybrid Funds
i. Balanced Funds: These are the funds that aim at allocating the total assets with it in
the portfolio mix of debt and equity instruments. Balanced funds provide investor
with an option of single mutual fund that combines both growth and income
objectives, by investing in both stocks (for growth) and bonds (for income).
Balanced funds are also called equity-oriented funds and their tax treatment is like
an equity fund. Their average returns and risk profile fall somewhere in between
growth and debt funds.
ii. Monthly Income Plans: These plans seek to provide regular income by declaring
dividends. It therefore invests largely in debt securities. However, a small percentage
 is invested in equity shares to improve the scheme’s yield. Monthly Income Plan are
also called debt-oriented hybrid schemes. ‘Monthly Income’ is however not assured
and depends on the distributable surplus of the scheme.
iii. Capital Protection Oriented Schemes: These are mutual fund schemes which
endeavour to protect the capital invested therein through suitable orientation of its
portfolio structure. The orientation towards protection of capital originates from the
portfolio structure of the scheme and not from any bank guarantee, insurance cover
etc. SEBI stipulations require these types of schemes to be close- ended in nature,
listed on the stock exchange and the intended portfolio structure would have to be
mandatory rated by a credit rating agency. A typical portfolio structure could be to
set aside major portion of the assets for capital safety and could be invested in highly
rated debt instruments. The remaining portion would be invested in equity or equity
related instruments to provide capital appreciation. Capital Protection Oriented
schemes should not be confused with ‘Capital Guaranteed’ schemes.
 DEBT FUND

A debt fund is a mutual fund scheme that invests in fixed income instruments, such as
Corporate and Government Bonds, corporate debt securities, and money market instruments
etc. that offer capital appreciation. Debt funds are also referred to as Income Funds or Bond
Funds.

Buying a debt instrument can be considered as lending money to the entity issuing the
instrument. A debt fund invests in fixed-interest generating securities such as corporate
bonds, government securities, treasury bills, commercial paper, and other money market
instruments. The fundamental reason for investing in debt funds is to earn a steady interest
income and capital appreciation. The issuers of debt instruments pre-decide the interest rate
you will receive as well as the maturity period. Hence, they are also known as ‘fixed-income’
securities.

They invest in a variety of securities, based on their credit ratings. A security’s credit rating
signifies the risk of default in disbursing the returns that the debt instrument issuer promised.
The fund manager of a debt fund ensures that he invests in high rated credit instruments. A
higher credit rating means that the entity is more likely to pay interest on the debt security
regularly as well as pay back the principal upon maturity.

Debt funds which invest in higher-rated securities are less volatile when compared to that of
low-rated securities. Additionally, maturity also depends on the investment strategy of the
fund manager and the overall interest rate regime in the economy. A falling interest rate
regime encourages the fund manager to invest in long-term securities. Conversely, a rising
interest rate regime encourages him to invest in short-term securities.

They try to optimise returns by investing across all classes of securities. This allows debt
funds to earn decent returns. However, the returns are not guaranteed. Debt fund returns often
fall in a predictable range. This makes them safer avenues for conservative investors. They
are also suitable for people with both short-term and medium-term investment horizons.
Short-term ranges from three months to one year, while medium-term ranges from three years
to five years.
SHORT TERM DEBT FUNDS
For a short-term investor, debt funds like liquid funds may be an ideal investment, compared
to keeping your money in a saving bank account. Liquid funds offer higher returns in the
range of 7%-9% along with similar kinds of liquidity to meet emergency requirements.

MEDIUM TERM DEBT FUNDS

For a medium-term investor, debt funds like dynamic bond funds are ideal for riding the
interest rate volatility. When compared to 5-year bank FDs, debt bond funds offer higher
returns. If you are looking to earn a regular income from your investments, then Monthly
Income Plans may be a good option.
 TYPES OF DEBT FUNDS
 Dynamic Bond Funds
As the name suggests, these are ‘dynamic’ funds. Meaning, the fund manager keeps
changing portfolio composition as per the fluctuating interest rate regime. Dynamic
bond funds have different average maturity periods as these funds take interest rate
calls and invest in instruments of longer and as well as shorter maturities.

 Income Funds
Income Funds take a call on the interest rates and invest predominantly in debt
securities with extended maturities. This makes them more stable than dynamic bond
funds. The average maturity of income funds is around five to six years.

 Short-Term and Ultra Short-Term Debt Funds

These are debt funds that invest in instruments with shorter maturities, ranging from
one year to three years. Short-term funds are ideal for conservative investors as these
funds are not affected much by interest rate movements.

 Liquid Funds
Liquid funds invest in debt instruments with a maturity of not more than 91 days. This
makes them almost risk-free. Liquid funds have rarely seen negative returns. These
funds are better alternatives to savings bank accounts as they provide similar liquidity
with higher yields. Many mutual fund companies offer instant redemption on liquid
fund investments through unique debit cards.

 Gilt Funds
Gilt Funds invest in only government securities – high-rated securities with very low
credit risk. Since the government seldom defaults on the loan it takes in the form of
debt instruments; gilt funds are an ideal choice for risk-averse fixed-income investors.

 Credit Opportunities Funds

These are relatively newer debt funds. Unlike other debt funds, credit opportunities
funds do not invest as per the maturities of debt instruments. These funds try to earn
 higher returns by taking a call on credit risks or by holding lower-rated bonds that come
with higher interest rates. Credit opportunities funds are relatively riskier debt funds.

 Fixed Maturity Plans

Fixed maturity plans (FMP) are closed-ended debt funds. These funds also invest in
fixed income securities such as corporate bonds and government securities. All FMPs
have a fixed horizon for which your money will be locked-in. This horizon can be in
months or years. However, you can invest only during the initial offer period. It is like a
fixed deposit that can deliver superior, tax-efficient returns but does not guarantee high
returns.
 PERFORMANCE OF DEBT FUND CATEGORIES

Long term Funds

These Debt funds invests in bonds and debt for investment such that average maturity
(remaining) period for portfolio is higher than 7 years (Macaulay duration).
Longer duration funds may provide higher returns but are more sensitive to interest rate
changes.
The performance of long duration debt funds during the past five years is shown below:
Crisi
l 5-Year
Ran AuM 201 201 201 201 201 Averag
Scheme Name k (Cr) 9 8 7 6 5 e
ICICI Prudential Long Term Bond Fund -
Direct Plan - Growth Long Duration Fund 4 854.25 13% 7% 5% 17% 6% 10%
ICICI Prudential Long Term Bond Fund -
Growth Long Duration Fund 3 854.25 12% 7% 4% 16% 5% 9%
Nippon India Nivesh Lakshya Fund - 1622.6
Growth Long Duration Fund - 0 13% 9% - - - 11%
Nippon India Nivesh Lakshya Fund - Direct 1622.6
Plan - Growth Long Duration Fund - 0 13% 9% - - - 11%
1238.4 13 16
Average Returns 3 % 8% 5% % 6% 10%
Note: NAV and returns data as on 13 November 2020
Source:https://www.moneycontrol.com/mutual-funds/performance-tracker/annual-returns/long-duration-fund.html,
Accessed: 17th November 2020

The following chart represents the relationship between interest rates and the performance of
Long duration debt funds:

Long Duration Funds Performance vis-a-vis

Interest Rates
18%
16%
14%
12%
10%
8%
6%
4%
2%
0%
2015 2016 2017 2018 2019

Average Returns Interest Rates

From the graph, it can be observed that the performance of the long duration funds has been
quite volatile during the past five years and no relationship can be observed between its
performance and the interest rates (10-year government yield). The Coefficient of correlation
is -0.54.

Short term funds

These debt funds select bonds and debt for investment such that average maturity period for
portfolio is between 1 to 3 years (Macaulay duration).
Shorter duration funds may provide lower returns but are lesser risky to interest rate changes.
The performance of short duration debt funds during the past five years is shown below:
Crisi
l 5-Year
Ran AuM 201 201 201 201 201 Averag
Scheme Name k (Cr) 9 8 7 6 5 e
BNP Paribas Short Term Fund - Growth
Short Duration Fund 5 352.44 7% 7% 6% 9% 8% 7%
BNP Paribas Short Term Fund - Direct Plan
- Growth Short Duration Fund 5 352.44 8% 7% 6% 10% 9% 8%
Principal Short Term Debt Fund - Growth
Short Duration Fund 5 134.08 -2% 6% 6% 9% 8% 6%
Principal Short Term Debt Fund - Direct
Plan - Growth Short Duration Fund 5 134.08 -1% 7% 7% 10% 9% 6%
Aditya Birla Sun Life Short Term Fund -
Regular Plan - Growth Short Duration Fund 4 8135.39 9% 6% 6% 11% 8% 8%
Aditya Birla Sun Life Short Term Fund -
Direct Plan - Growth Short Duration Fund 4 8135.39 9% 7% 6% 12% 9% 9%
L&T Short Term Bond Fund - Growth
Short Duration Fund 4 4208.45 9% 6% 6% 9% 8% 8%
L&T Short Term Bond Fund - Direct Plan -
Growth Short Duration Fund 4 4208.45 10% 7% 6% 9% 9% 8%
Sundaram Short Term Debt Fund - Growth
Short Duration Fund 4 133.06 -5% 6% 6% 9% 7% 5%
Sundaram Short Term Debt Fund - Direct
Plan - Growth Short Duration Fund 4 133.06 -5% 7% 7% 10% 8% 6%
UTI Short Term Income Fund - Institutional
- Growth Short Duration Fund 4 2671.89 -4% 6% 6% 10% 8% 5%
UTI Short Term Income Fund - Direct Plan
- Growth Short Duration Fund 4 2671.89 -3% 6% 7% 11% 9% 6%
IDFC Bond Fund - Short Term - Regular 13210.2
Plan - Growth Short Duration Fund 3 4 10% 6% 6% 9% 8% 8%
Axis Short Term Fund - Growth Short 12288.3
Duration Fund 3 2 10% 6% 6% 10% 8% 8%
Axis Short Term Fund - Direct Plan - 12288.3
Growth Short Duration Fund 3 2 10% 7% 7% 10% 9% 9%
Canara Robeco Short Duration Fund -
Regular Plan - Growth Short Duration Fund 3 916.93 9% 6% 7% 9% 5% 7%
Canara Robeco Short Duration Fund -
Direct Plan - Growth Short Duration Fund 3 916.93 9% 6% 8% 10% 6% 8%
DSP Short Term Fund - Regular Plan - 3 3456.97 9% 6% 6% 9% 8% 7%
Growth Short Duration Fund
DSP Short Term Fund - Direct Plan -
Growth Short Duration Fund 3 3456.97 10% 7% 7% 10% 9% 8%
Kotak Bond Short Term Plan - Growth 17050.3
Short Duration Fund 3 5 10% 6% 5% 10% 8% 8%
Kotak Bond Short Term Plan - Direct Plan - 17050.3
Growth Short Duration Fund 3 5 10% 7% 6% 11% 9% 9%
LIC MF Short Term Debt Fund - Growth
Short Duration Fund 3 482.45 8% - - - - 8%
LIC MF Short Term Debt Fund - Direct
Plan - Growth Short Duration Fund 3 482.45 9% - - - - 9%
Invesco India Short Term Fund - Growth
Short Duration Fund 3 1056.11 9% 5% 5% 10% 7% 7%
Invesco India Short Term Fund - Direct
Plan - Growth Short Duration Fund 3 1056.11 10% 6% 6% 10% 8% 8%
Nippon India Short Term Fund - Direct
Plan - Growth Short Duration Fund 3 8931.62 10% 6% 6% 10% 9% 8%
SBI Short Term Debt Fund - Growth Short 19096.9
Duration Fund 3 2 9% 6% 6% 10% 8% 8%
SBI Short Term Debt Fund - Direct Plan - 19096.9
Growth Short Duration Fund 3 2 10% 7% 6% 10% 9% 8%
Tata Short Term Bond Fund - Regular Plan
- Growth Short Duration Fund 3 3333.27 9% 0% 6% 9% 8% 6%
Tata Short Term Bond Fund - Direct Plan -
Growth Short Duration Fund 3 3333.27 10% 1% 6% 10% 9% 7%
IDFC Bond Fund - Short Term - Direct Plan 13210.2
- Growth Short Duration Fund 2 4 10% 7% 6% 9% 9% 8%
PGIM India Short Maturity Fund - Growth
Short Duration Fund 2 34.04 -1% 5% 7% 10% 8% 6%
PGIM India Short Maturity Fund - Direct
Plan - Growth Short Duration Fund 2 34.04 0% 6% 8% 11% 9% 7%
HDFC Short Term Debt Fund - Growth 15461.8
Short Duration Fund 2 8 10% 7% 7% 9% 9% 8%
HDFC Short Term Debt Fund - Direct Plan 15461.8
- Growth Short Duration Fund 2 8 10% 7% 7% 9% 9% 8%
IDBI Short Term Bond Fund - Growth
Short Duration Fund 2 20.90 0% 6% 6% 8% 8% 6%
IDBI Short Term Bond Fund - Direct Plan -
Growth Short Duration Fund 2 20.90 1% 8% 7% 9% 9% 7%
Indiabulls Short Term Fund - Regular Plan -
Growth Short Duration Fund 2 22.64 5% 7% 6% 8% 10% 7%
Indiabulls Short Term Fund - Direct Plan -
Growth Short Duration Fund 2 22.64 6% 8% 7% 10% 12% 9%
Mirae Asset Short Term Fund - Regular
Plan - Growth Short Duration Fund 2 641.51 9% 4% - - - 7%
Mirae Asset Short Term Fund - Direct Plan
- Growth Short Duration Fund 2 641.51 10% 5% - - - 8%
ICICI Prudential Short Term Fund - Growth 20927.1
Short Duration Fund 2 1 10% 6% 6% 11% 8% 8%
ICICI Prudential Short Term Fund - Direct 20927.1
Fund - Growth Short Duration Fund 2 1 10% 7% 7% 12% 9% 9%
Nippon India Short Term Fund - Growth
Short Duration Fund 2 8931.62 9% 5% 6% 10% 8% 8%
BOI AXA Short Term Income Fund - -
Growth Short Duration Fund 1 32.09 13% 6% 6% 10% 9% 4%
BOI AXA Short Term Income Fund - -
Direct Plan - Growth Short Duration Fund 1 32.09 13% 7% 7% 11% 10% 4%
Baroda Short Term Bond Fund - Plan A -
Growth Short Duration Fund 1 579.74 9% 7% 8% 9% 9% 8%
Baroda Short Term Bond Fund - Plan B 1 579.74 10% 8% 8% 10% 9% 9%
 (Direct) - Growth Short Duration Fund
HSBC Short Duration Fund - Growth Short
Duration Fund 1 271.08 -1% 6% 5% 9% 8% 5%
HSBC Short Duration Fund - Direct Plan -
Growth Short Duration Fund 1 271.08 0% 7% 6% 10% 9% 6%
Franklin India Short Term Income Plan -
Growth Short Duration Fund 1 5303.99 4% 9% 9% 8% 9% 8%
Franklin India Short Term Income Plan -
Direct - Growth Short Duration Fund 1 5303.99 5% 9% 9% 9% 10% 9%
10
Average Returns 5336.67 6% 6% 6% % 8% 7%
Note: NAV and returns data as on 13 November 2020
Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/short-duration-fund.html, Accessed: 17th
November 2020

The following chart represents the relationship between interest rates and the performance of
short duration debt funds:

Short Duration Funds Performance vis-a-vis

Interest Rates
12%

10%

8%

6%

4%

2%

0%
2015 2016 2017 2018 2019

Average Returns Interest Rates

From the graph, it can be observed that the performance of the short duration funds has been
quite similar to that of the government bonds, during the past five years and no clear
relationship can be observed between its performance and the interest rates (10-year
government yield).

The Coefficient of correlation is 0.158

Gilt Funds
Gilt funds are debt funds that invest in government securities. The government bonds used to
be issued in golden-edged certificates. The nickname gilt comes from gilded edge certificates.
Gilt funds are debt funds that invest in government securities. The government bonds used to
be issued in golden-edged certificates.

The performance of gilt funds during the past five years is shown below:

Crisi
AuM 201 201 201 201 201 5-Year
Scheme Name l
(Cr) 9 8 7 6 5 Average
Rank
Edelweiss Government Securities Fund 5 65.27 11% 7% 4% 12% 6% 8%
2,104.8
IDFC Government Securities Fund 4 7 14% 8% 3% 14% 6% 9%
DSP Government Securities Fund 4 561.11 13% 7% 1% 15% 6% 9%
1,931.4
Nippon India Gilt Securities Fund 4 6 13% 8% 3% 17% 6% 10%
4,307.1
SBI Magnum Gilt Fund 3 0 13% 5% 4% 16% 8% 9%
Kotak Gilt – Investment 3 860.75 10% 7% 1% 16% 6% 8%
L&T Gilt 3 279.74 9% 6% 0% 17% 8% 8%
LIC MF Government Securities Fund 3 59.74 12% 8% 1% 14% 6% 8%
UTI Gilt Fund 3 815.00 12% 6% 4% 15% 6% 9%
2,693.1
HDFC Gilt Fund 3 4 9% 5% 2% 16% 6% 8%
PGIM India Gilt Fund 3 159.75 10% 6% 4% 12% 7% 8%
Franklin India Government Securities Fund 3 258.99 8% 4% 0% 16% 6% 7%
Invesco India Gilt Fund 3 32.89 10% 6% 1% 16% 4% 8%
4,782.4
ICICI Prudential Gilt Fund 2 2 11% 7% 2% 18% 6% 9%
Aditya Birla Sun Life Government
Securities Fund 2 609.01 11% 7% 4% 17% 6% 9%
Canara Robeco Gilt Fund 2 133.02 10% 5% 3% 18% 7% 9%
Baroda Gilt Fund - Plan A 2 30.47 9% 6% 2% 13% 7% 7%
Tata Gilt Securities Fund 1 191.93 10% 5% 3% 13% 6% 7%
Axis Gilt Fund - 153.27 12% 5% 1% 14% 6% 8%
Kotak Gilt - Investment - PF and Trust - 860.75 10% 7% 1% 16% 6% 8%
Nippon India Gilt Securities Fund- PF 1,931.4
Automatic Capital - 6 13% 8% 3% 17% 6% 9%
IDBI Gilt Fund - 27.10 8% 5% -1% 13% 5% 6%
11 15
Average Returns   1038.60 % 6% 2% % 6% 8%
Note: NAV and returns data as on 13 November 2020
Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/gilt-fund.html, Accessed: 16th
November 2020
 Gilt Funds - Average Returns
18%
16% 15%

14%
12% 11%
10%
8%
6% 6%
6%
4%
2%
2%
0%
2015 2016 2017 2018 2019

From the above table, it can be observed that the top performing funds during the past
five years under the Gilt Funds category are:
 ICICI Prudential Gilt Fund
 SBI Magnum Gilt Fund
 Nippon India Gilt Securities Fund

The average return provided by gilt funds in India during the past five years is 8% and
the average AUM of these funds is Rs. 1,038.60 crores.

The following chart represents the relationship between interest rates and the
performance of gilt funds:

Gilt Funds performance vis-a-vis Interest Rates

18%
16% 15%

14%
12% 11%
10%
7.73% 7.71%
8% 6.93% 6.97% 6.64%
6% 6%
6%
4%
2%
2%
0%
2015 2016 2017 2018 2019

Average Returns Interest Rates

 From the above, it can be seen that the performance of gilt funds has been very volatile
during the past five years and no relationship can be observed between its performance
and the interest rates (10-year government yield).

Ultra-Short-Term Funds
Ultra-Short Duration Funds are debt funds that lend to companies for a period of 3 to 6
months. Although these are low-risk funds owing to their low lending duration, they are
slightly above liquid funds in the risk spectrum but still one of the lowest risk categories of
Schemes to invest in. The performance of ultra-short duration funds during the past five years
is shown below:
Crisi
AuM 5-Year
Scheme Name l 2019 2018 2017 2016 2015
(Cr) Average
Rank
IDFC Ultra Short Term Fund 5 5,034.17 8% 4% - - - 6%
BOI AXA Ultra Short Duration Fund - 5 347.87 8% 8% 8% 9% 9% 8%
Aditya Birla Sun Life Savings Fund 4 16,215.21 8% 8% 7% 9% 9% 8%
L&T Ultra Short Term Fund 4 3,055.40 8% 7% 7% 8% 8% 8%
L&T Ultra Short Term Fund 4 3,055.40 8% 7% 7% 8% 8% 8%
DSP Ultra Short Fund 4 2,859.40 7% 5% 6% 7% 8% 7%
ICICI Prudential Ultra Short Term Fund 3 8,266.18 8% 7% 7% 10% 9% 8%
HDFC Ultra Short Term Fund 3 15,215.61 8% 2% - - - 5%
SBI Magnum Ultra Short Duration Fund 3 14,207.11 8% 8% 7% 8% 8% 8%
Kotak Savings Fund 3 13,539.44 8% 7% 7% 8% 9% 8%
Indiabulls Ultra Short Term Fund 3 21.86 8% 7% 7% 9% 9% 8%
Invesco India Ultra Short Term Fund 3 703.54 8% 7% 7% 9% 8% 8%
IDBI Ultra Short Term Fund 3 282.34 7% 7% 6% 8% 8% 7%
Canara Robeco Ultra Short Term Fund 3 341.96 7% 6% 6% 7% 8% 7%
Essel Ultra Short Term Fund 3 20.55 6% 7% 6% 8% 8% 7%
PGIM India Ultra Short Term Fund 2 235.08 14% 8% 7% 8% 9% 9%
Axis Ultra Short Term Fund 2 4,206.51 8% 2% - - - 5%
UTI Ultra Short Term Fund 2 1,486.93 3% 7% 7% 9% 8% 7%
Sundaram Ultra Short Term Fund 2 626.92 3% - - - - 3%
Principal Ultra Short Term Fund 2 136.67 6% 1% 6% 8% 9% 6%
Nippon India Ultra Short Duration Fund 1 601.12 1% 7% 6% 7% 8% 6%
Motilal Oswal Ultra Short Term Fund 1 34.63 6% -8% 6% 6% 7% 3%
Franklin India Ultra Short Bond Fund 1 10,065.58 9% 9% 8% 10% 10% 9%
Mahindra Manulife Ultra Short Term Fund - 182.57 1% - - - - 1%
Baroda Ultra Short Duration Fund - 267.85 8% 5% - - - 6%
Tata Ultra Short Term Fund - 277.31 7% - - - - 7%
YES Ultra Short Term Fund - 61.14 3% - - - - 3%
Nippon India Ultra Short Duration Fund - 39.34 -24% - - - - -24%
LIC MF Ultra Short Term Fund - 93.38 0% - - - - 0%
Average Returns   3499.35 5% 6% 7% 8% 8% 5%
Note: NAV and returns data as on 13 November 2020
Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/returns/ultra-short-duration-fund.html,
Accessed: 16th November 2020

Ultra Short Duration Funds - Average Returns

9%8%
8%
8%
7% 7%

6% 6% 5%
5%
4%
3%
2%
1%
0%
2015 2016 2017 2018 2019

From the above table, it can be observed that the top performing funds during the past
five years under the Ultra Short Duration Funds category are:

 Aditya Birla Sun Life Savings Fund

 SBI Magnum Ultra Short Duration Fund
 Franklin India Ultra Short Bond Fund - Super Institutional

The average return provided by ultra-short duration funds in India during the past five
years is 5% and the average AUM of these funds is Rs. 3,499.35 crores.

The following chart represents the relationship between interest rates and the
performance of ultra-short duration funds:
 Ultra Short Duration Funds Performance vis-a-vis Interest
Rates
9%8% 8%
7.73% 7.71%
8%
6.93% 6.97%
7% 7% 6.64%

6% 6% 5%
5%
4%
3%
2%
1%
0%
2015 2016 2017 2018 2019

Average Returns Interest Rates

From the above, it can be seen that the performance of ultra-short duration funds has
been steady during the past five years and a general inverse relationship can be
observed between its performance and the interest rates (10-year government yield).

Credit Risk Funds

Credit-risk funds are a type of debt funds that invest majority of the investment corpus in less
than AA-rated paper. By taking greater credit risk and investing in lower-rated documents,
they produce high returns. Credit-risk funds make returns on the securities they hold in two
ways: first, they receive interest income. Second, since they invest in lower-rated securities,
they can create capital gains if the security rating is upgraded.

The following table provides a comprehensive list of credit risk funds in the Indian market.
For the purpose of comparing the fund performance with the interest rate, we have excluded
the outliers.
 AuM 5 Year
Scheme Name (Cr) YTD 2019 2018 2017 2016 2015 average
Invesco India Credit Risk Fund - Regular
Plan - Growth Credit Risk Fund 147 7% -5% 4% 7% 11% 9% 5%

Sundaram Short Term Credit Risk Fund -

Growth Credit Risk Fund 116 5% -6% 7% 7% 7% 9% 5%

HDFC Credit Risk Debt Fund - Regular

Plan - Growth Credit Risk Fund 6336 9% 9% 5% 7% 11% 9% 8%

ICICI Prudential Credit Risk Fund - Growth

Credit Risk Fund 6513 9% 9% 7% 7% 9% 9% 8%

SBI Credit Risk Fund - Growth Credit Risk

Fund 3714 9% 6% 6% 7% 10% 10% 8%

IDFC Credit Risk Fund - Regular Plan -

Growth Credit Risk Fund 800 6% 9% 5% 5% - - 7%

Axis Credit Risk Fund - Growth Credit Risk

Fund 557 7% 4% 6% 6% 10% 9% 7%

L&T Credit Risk Fund - Regular Plan -

Growth Credit Risk Fund 256 4% 2% 6% 7% 10% 9% 7%

DSP Credit Risk Fund - Regular Plan -

Growth Credit Risk Fund 322 4% 4% -3% 6% 11% 10% 6%

Kotak Credit Risk Fund - Growth Credit

Risk Fund 1861 5% 9% 6% 7% 10% 9% 8%

Mahindra Manulife Credit Risk Fund -

Growth Credit Risk Fund 119 5% 7% 2% - - - 5%

Baroda Credit Risk Fund - Plan A - Growth

Credit Risk Fund 239 1% 2% 6% 8% 11% 10% 7%

PGIM India Credit Risk Fund- Regular Plan

- Growth Credit Risk Fund 58 -4% 3% 5% 7% 10% 11% 7%

Nippon India Credit Risk- Growth Credit

Risk Fund 1324 -7% 2% 6% 7% 10% 9% 7%

Franklin India Credit Risk Fund - Growth

Credit Risk Fund 3481 -3% 4% 8% 8% 9% 9% 8%

BOI AXA Credit Risk - Regular Plan -

Growth Credit Risk Fund 69 -45% -45% 0% 9% 11% 7% -4%

IDBI Credit Risk Fund - Regular Plan -

Growth Credit Risk Fund 38 -5% -5% 6% 5% 9% 9% 5%

UTI Credit Risk Fund - Growth Credit Risk

Fund 354 -28% -5% 5% 7% 10% 9% 5%

Nippon India Credit Risk Fund - Segregated

Portfolio 1 - Growth Credit Risk Fund 28 2% - - - - - 0%

Nippon India Credit Risk Fund - Segregated

Portfolio 1 - Institutional - Growth Credit
Risk Fund 28 -4% - - - - - 0%
UTI Credit Risk Fund (Segregated - Altico)
- Regular Plan - Growth Credit Risk Fund 31 -19% 0% - - - - 0%

UTI Credit Risk Fund (Segregated -

17022020) - Regular Plan - Growth Credit
Risk Fund 56 -48% - - - - - 0%

Average Returns 1202.00 4% 4% 5% 7% 10% 9% 7%

Note: NAV and returns data as on 13 November 2020

Source: https://www.moneycontrol.com/mutual-funds/performance-tracker/annual-returns/credit-risk-fund.html, Accessed:

16th November 2020

Credit Risk Funds - Average Returns

12%

10%
10%9%

8%
7%

6%
5%
4%
4%

2%

0%
2015 2016 2017 2018 2019

From the above table, it can be observed that the top performing funds during the past
five years under the Ultra Short Duration Funds category are:
 HDFC Credit Risk Debt Fund - Regular Plan - Growth Credit Risk Fund

 SBI Credit Risk Fund - Growth Credit Risk Fund

 ICICI Prudential Credit Risk Fund - Growth Credit Risk Fund

 Credit Risk Funds performance vis-a-vis Interest Rates
12%

10%

8%

6%

4%

2%

0%
2015 2016 2017 2018 2019

Average Returns Interest Rates

It can be observed that the interest rate and average returns are not showing any
particular relationship. As in the year 2018, there has been a steady rise in the fund
performance as compared to fall in the interest rate.
 INTEREST RATES
The trend in interest rates over the past various years is outlined hereunder:
Call/ Deposit Rates 5-Year 10-Year
Year (as Lending
Notice Government Government
at end Term Deposits Rates
Money Bond Bond
March) Savings
Rates 1-3 yrs 3-5 yrs Above 5 yrs
1 2 3 4 5 6 7    
2002-03 5.89 3.5 4.25-6.00 5.50-6.25 5.50-6.25 10.75-11.50    
2003-04 4.62 3.5 4.00-5.25 5.25-5.50 5.25-5.50 10.25-11.00    
2004-05 4.65 3.5 5.25-5.75 5.75-6.25 6.25 10.25-11.00    
2005-06 5.6 3.5 6.00-6.75 6.25-7.00 6.50-7.00 10.25-12.75    
2006-07 7.22 3.5 6.75-8.50 7.75-9.50 7.75-8.50 12.25-14.75    
2007-08 6.07 3.5 8.00-8.75 8.00-8.75 8.50-9.00 12.25-15.75    
2008-09 7.26 3.5 8.00-8.75 8.00-8.50 7.75-8.50 11.50-16.75    
2009-10 3.29 3.5 6.00-7.00 6.50-7.50 7.00-7.75 11.00-15.75    
2010-11 5.89 3.5 8.25-9.00 8.25-8.75 8.50-8.75 8.25-9.50    
2011-12 8.22 4 9.25 9.00-9.25 8.50-9.25 10.00-10.75    
2012-13 8.09 4 8.75-9.00 8.75-9.00 8.50-9.00 9.70-10.25    
2013-14 8.28 4 8.75-9.25 8.75-9.10 8.50-9.10 10.00-10.25    
2014-15 7.97 4 8.50-8.75 8.50-8.75 8.25-8.50 10.00-10.25 8.27 8.28
2015-16 6.98 4 7.25-7.50 7.00-7.50 7.00-7.30 9.30-9.70 7.78 7.73
2016-17 6.25 4 6.75-7.00 6.50-6.90 6.50-6.75 7.75-8.20 6.93 6.93
2017-18 5.94 3.50-4.00 6.40-6.75 6.25-6.70 6.25-6.75 7.80-7.95 6.94 6.97
2018-19 6.27 3.50-4.00 6.25-7.25 6.25-7.25 6.25-7.25 8.05-8.55 7.61 7.71
2019-20   3.25-3.50 6.25-7.10 6.25-7.00 6.25-7.00 7.90-8.40 6.41 6.64
 CONCLUSION

We have compared the fund performance of 5 funds over last 5 years. As can be inferred
from the below graph, some funds have a higher standard deviation as compared to other
fund.
Gilt funds and Long-term funds are not very stable, that is there is high return on some years
and low returns in some. Whereas Short term funds, ultra-short-term funds and credit risk
funds are relatively stable.

Based on the analysis, we conclude that debt fund performance is highly correlated with
interest rate and the appropriate fund selection should be based on the risk appetite of the
investor.

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%
2015 2016 2017 2018 2019

Long term funds Short term funds Gilt funds

Ultra short Credit Risk fund