Debt mutual funds are used as safer investment instruments by conservative investors to earn better returns than bank savings accounts and fixed deposits. These instruments are used for short-term financial goals. Some debt funds have been in the industry for more than 25 years.
Schemes like JM Medium to Long Duration Fund, ABSL Income Fund, DSP Bond Fund and HDFC Dynamic Debt Fund, are the longest standing debt mutual funds in the industry. These schemes have offered 6-9% since their inception. Three of these schemes are duration funds and one is a dynamic bond fund. Because these are all duration funds, they have been going through a rough time because of RBI’s rate hike cycle in the last one year.
|Scheme name||Inception date||Returns since inception|
|JM Medium to Long Duration Fund||01-Apr-1995||6.09%|
|ABSL Income Fund||21-Oct-1995||9.02%|
|DSP Bond Fund||29-Apr-1997||7.73%|
|HDFC Dynamic Debt Fund||28-Apr-1997||8.14%|
Source: Value Research
Let’s take a look at how these four funds have fared in terms of returns and risk management.
JM Medium to Long Duration Fund
This scheme manages a small AUM of Rs 21 crore. The scheme has been a below average performer in the last 10 years among the medium to long duration bond funds. On a trailing return basis, the scheme has underperformed its benchmark in the last one, three, five and 10 years. In the last one year, the scheme has offered 0.34% returns. The scheme went through a bad time during the credit crisis of 2018-19 when it lost 9% in one week. The scheme has beaten its benchmark thrice since 2010.
On a risk-reward basis, the scheme fares poorly than its peers. The scheme has a beta of 1.37%, which is higher than the category average, meaning the scheme has wider swings in performance. The sharpe and sortino of the fund are 0.00%, lower than the benchmark, which means lower returns for the risk it has taken on an average.
ABSL Income Fund
This is also a medium to long duration fund, but with a much bigger size of Rs 1,538 crore. The scheme has beaten its benchmark rather consistently in the long term. With 3.03% returns in six months, the scheme is on the 6th spot in the return chart. In the last one year, the fund has offered 1.95% returns. The scheme has beaten its benchmark 6 times since 2010.
The mean of the scheme versus the category average on a monthly basis is 5.87% vs 4.83%. One the basis of standard deviation of 3.46%, the scheme exhibits higher levels of volatility than the benchmark and category average. The sortino of the fund, however, shows higher risk-adjusted returns compared to the peers.
DSP Bond Fund
This fund is a medium duration fund and manages a total AUM of Rs 341 crore. On a trailing return basis, the fund has been underperforming its benchmark in the one year horizon, but the longer term performance is decent. However, since 2010, the scheme has beaten its benchmark only in three years. The fund has managed to place itself in the top 10 across time horizons on a trailing return basis.
The scheme exhibits lower volatility based standard deviation but the risk-adjusted returns are lower than the category average. The beta of the fund is 1.03 which shows higher volatility, the sharpe ratio of 0.72 shows poor risk-adjusted returns. The mean returns on a monthly basis stand at 5.37%, compared to 5.62% average for the category.
HDFC Dynamic Debt Fund
This is a dynamic bond fund which means the duration of papers in the portfolio can change based on the fund manager’s outlook of the interest rates. The fund manages a total AUM Of Rs 505 crore. In the last one year, the scheme has offered 1.08% returns, which is lower than the category average of 2.47%. The fund has outperformed its benchmark 5 times since 2010.
The fund exhibits higher standard deviation than the category average. Its sharpe ratio is higher than the category average which means better risk-adjusted returns. The mean returns on a monthly basis stand at 5.84% v/s 4.94% of the category.