BEST DEBT FUNDS

Focus on portfolio mix, duration and AAA and AA rated assets helped the best performers deliver impressive returns.

- ARNIKA THAKUR

1 ULTRA-SHORT DURATION FUNDS

ULTRA-SHORT duration funds, which include categories such as ultra-short duration, low duration and money market funds, are ideal for risk-averse, short-term investors. The top-performing fund in the category — Nippon India Money Market Gr — had rolling returns of 4.89% (as on September 30, 2023). Maintaining a conservative duration of 120-180 days (money market funds can invest in assets with maximum maturity of up to one year), and a healthy balance between asset quality and carry (direct cost paid by an investor to maintain a security position) played out well for the fund this year.

“The discipline of maintaining duration in a range has also helped the fund perform in a volatile interest rate scenario,” says Anju Chhajer, senior fund manager, fixed income, Nippon India Mutual Fund. In terms of asset quality, 60-70% of the fund’s portfolio was invested in issuers rated long-term AAA and AA+, while 15-25% was in sovereign instruments. “This is an all-weather fund, which works in all the market scenarios — especially for investment time horizons of two-six months,” adds Chhajer.

UTI Money Market Reg, the second-best performing fund in the category, returned 4.85% last year. Finding value across the yield curve, and active duration management have been central to the fund’s strategy, says Amit Sharma, vice president and fund manager, debt, UTI Mutual Fund. “We had a strong conviction that central banks, including RBI, will keep rates high till they see inflation aligning to their target. We remained moderately lower on duration due to our view that short-term rates may remain under pressure in an environment of strong credit growth and consequently heavy duration supply amidst a backdrop of tighter liquidity,” he says.