Best Debt Mutual Funds to Invest in for the Next 6 Months
Last Updated : July 11, 2020, 6:11 p.m.
Debt funds invest in debt securities such as corporate bonds, money market instruments, commercial paper, certificate of deposit, treasury bills and government securities. Different types of debt funds invest for varying maturities or duration of these securities. So, there could be a debt fund investing in securities maturing in a day, month, year, three years and more.
Your time horizon of investment plays an important part in selecting the right debt fund. There are different and appropriate debt funds for varying time horizons.
Top Mutual Funds to Invest in Now
If you wish to invest for the next six months, we recommend investing in debt funds that carry minimal or lowest risk since this time period is too short to invest in a duration based fund. There are three types of debt funds suitable for the next 6 months.
You can invest in one, two or all three categories by picking one fund in each category. We have also detailed the best funds in each category, you can pick from those.
Best Debt Funds for the Next 6 Months
Ultra Short Term Funds
Ultra short term funds are a type of debt funds that invest in debt securities (corporate bonds, government securities and money market instruments) with an average maturity of 3-6 months. They are like liquid funds with the exception that liquid funds cannot invest in securities with maturities beyond 91 days.
Since these funds invest in securities with higher maturities, the risk and return are relatively higher than liquid funds. This is because interest rates do not fluctuate a lot in the short term thereby having a lesser impact on the risk & returns of various debt funds. As the average maturity of a debt fund increases or is higher, interest rates have a bearing on the risk and return from that fund.
These funds are the best option for the next 6 months when we evaluate both risk and return expectations. To know the best ultra-short term funds, you can read another post of ours- https://www.wishfin.com/mutual-fund/five-best-ultra-short-term-funds-to-invest-in/
Liquid Funds
Liquid funds are a type of debt fund which invests in treasury bills, commercial papers, bank fixed deposits. The maturities of all these in a liquid fund is up to 90 days. When you invest your money in a liquid fund, the same is lent by the mutual fund to institutions such as banks and corporates.
One can view these as an alternative to keeping money in a savings bank a/c where you get 3-4% whereas liquid funds tend to return 5-7%. There is no lock-in, one can withdraw anytime. There are no exit loads in liquid funds, when one withdraws no amount is deducted by the AMC.
These funds are a safe option for the next 6 months with low risk but offer better returns than a savings bank account, to know the best liquid funds, you can read another post of ours- https://www.wishfin.com/mutual-fund/5-best-performing-liquid-funds-to-invest-in/
Overnight Funds
Overnight funds are open-ended debt mutual funds that invest in securities with overnight or one-day maturities. These securities are treasury bills, certificate of deposits, commercial papers, floating rate debt instruments.
This implies that the fund manager buys these debt securities every day for a day and sells it the next day. He/she again buys these securities the next day, again for a day and this is how the portfolio is managed. Overnight funds do not invest in securities with a maturity profile of more than a day. These funds are the safest option for the next 6 months, returns will be marginally better than savings bank accounts. To know the best overnight funds, you can read another post of ours- https://www.wishfin.com/mutual-fund/five-best-overnight-debt-funds-to-invest-in/