Debt Funds Outdo Fixed-Income Peers During The Past One Year

As far as fixed income avenues go, debt funds have recorded a far more impressive performance than their counterparts, such as bank deposits and company deposits, in the past one year (October 1, 2000 to September 31, 2001).

While a 12-month bank fixed deposit (FD) would have earned in the range of 8-10 per cent, and company FDs returned in the range of 8-11 per cent, debt funds have fetched far more handsome gains. For the same period, the i-BEX returned 10.46 per cent. (i-BEX is a bond index to measure the performance of Indian bond markets. It can also be used as a measure to compare the performance of different asset classes).

First, the gilt funds. These are funds which invest in government and money market securities or their combination. According to data sourced from Crisil, a comparative study of 14 gilt funds shows that these funds have, on an average, provided a return of 18.97 per cent. The best performers were DSP Merrill Lynch Govt Sec Fund (Growth) which returned 23.93 per cent, Birla Gilt Plus Plan C (Long) - growth which gave a return of 23.80 per cent and Chola Gilt Investment (cumulative) which yield 23.23 per cent. On the other hand, K Gilt - savings (growth) which returned 11.32 per cent and DSP Merrill Lynch Govt Sec Fund (Plan B) - growth which returned 12.91 per cent, were the sluggish performers.

For the six months ended September 31, gilt funds returned 9.15 per cent while for the three months ended September 31, they returned 3.59 per cent.

A study of 25 general debt funds (which invest in corporate bonds, government securities and money market instruments) reveals that their return, on an average, stood at 15.42 per cent over the past one year. Among the better performers were PNB Debt Fund (growth) which returned 20.48 per cent, Pioneer ITI Income Builder Account (IBA) Plan A (growth) which returned 17.16 per cent and JM Income Fund (growth) (17.01 per cent).

For the six months ended September 31, general debt funds returned 7.33 per cent while for the three months ended September 31, the returns were at 2.48 per cent.

Ved Prakash Chaturvedi, chief investment officer, Cholamandalam AMC, said the slide in interest rates helped debt funds generate impressive returns this year. Again, schemes with good quality portfolios and effective fund management have also performed much better than their counterparts.

However, very high returns will not continue though mutual fund instruments are likely to outperform competing instruments.

According to fund managers, with interest rates having come down in the recent past, the returns generated by the debt funds over the last one year have been in the 14 per cent range.

They however feel that investors should not bank on such impressive returns in the coming months. With interest rates expected to remain stable or register only a marginal drop, return expectations have been scaled down to the 8-10 per cent range over the next one year. If an investor wishes to enter into a debt fund at this point of time, he should do so without expecting a repetition of their past performance, they said.