IPASJ International Journal of Management (IIJM)

Web Site: http://www.ipasj.org/IIJM/IIJM.htm

A Publisher for Research Motivation ........ Email:[email protected]
Volume 5, Issue 5, May 2017 ISSN 2321-645X

A Study on Performance Evaluation of Selected

Debt Mutual Funds in India
Dr. Yashasvi R. Rajpara1, Miss. PinkibenJayramdasNenwani2
1
Asst. Professor, SEMCOM, VallabhVidyanagar, Gujarat-388120

2
Assistant Teacher,Charotar English Medium School, Anand-388001

INTRODUCTION:
Mutual fundshave played important role in financial market in recent decades soit is pertinent to study the performance
of mutual funds as it becomethe investors. The investment performance of mutual funds has beenextensively examined
for the development of capital market. The mutual fundsnormally come out with a number of schemes with different
investment objectives which arelaunched from time to time. Investors of mutual funds are known as unit holders. The
profits orlosses are shared by the investors in proportion to their investments. A mutual fund is required to be registered
with Securities andExchange Board of India (SEBI) which regulates securities markets before it can collectfunds from
the public.Debt schemes are also known as income schemes. Their objective is to provide regular andsteady income to
investors. Investment is generally made in fixed income securities likebonds and debentures. Such schemes distribute
periodically the income earned by them.Capital appreciation in such schemes may be limited.
The portfolio management of theseschemes does not want to make the investment in venturesome securities and for
thisreasonthese schemes are known as defensive schemes and are less sensitive to the market forces.These schemes are
less risky as compared to the equity schemes.Debt funds are funds that invest in debt instruments, which include
governmentsecurities, corporate bonds and money market instruments. These are calleddebtinstruments because the
issuers have borrowed money from the lender (investors) byissuing these securities. These debts, mainly known as
bonds, are income generatingproperties i.e. investors receive regular interest payments on them. Specifically, debt
could be an effective disciplining device in the hands ofshareholders which can be used strategically to curb managerial
actions that run counterto the objective of shareholder-value maximization.
The effectiveness of debt as adisciplining device or as a mechanism for expropriation is considered to depend on
theinstitutional context within which corporations are embedded such as the presence of awell-developed capital market
and banking systems, effective bankruptcy laws, activetakeover markets, and transparent auditing, accounting and
disclosure norms.The need for systematic and robust evidence on the precise governing role of debt inemerging
economies like India is underscored by the fact that country level experiencesshow that the quality of debt governance
has important system-wide ramifications, andthat prior knowledge of the underlying dynamics and timely institutional
reforms areimportant to guard against systemic crisis. Investors who want regularreturns with less risk prefer to invest
in these funds. These are ideal for retired people andothers with a need for capital stability and regular income and who
need some income tosupplement their earnings.

DEFINITION OF 'DEBT FUNDS:

Definition: Debt funds are mutual funds that invest in fixed income securities like bonds and treasury bills. Gilt fund,
monthly income plans (MIPs), short term plans (STPs), liquid funds, and fixed maturity plans (FMPs) are some of the
investment options in debt funds. Apart from these categories, debt funds include various funds investing in short term,
medium term and long term bonds.

Description: Debt funds are preferred by individuals who are not willing to invest in a highly volatile equity market. A
debt fund provides a steady but low income relative to equity. It is comparatively less volatile.

WHAT ARE DEBT MUTUAL FUNDS?

There are different types of Mutual Funds that invest in various securities, depending on their investment strategy.

Volume 5, Issue 5, May 2017 Page 1

 IPASJ International Journal of Management (IIJM)
Web Site: http://www.ipasj.org/IIJM/IIJM.htm
A Publisher for Research Motivation ........ Email:[email protected]
Volume 5, Issue 5, May 2017 ISSN 2321-645X

Debt Mutual Funds mainly invest in a mix of debt or fixed income securities such as Treasury Bills, Government
Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons. Generally,
debt securities have a fixed maturity date & pay a fixed rate of interest.
The returns of a debt mutual fund comprises of -
Interest income
Capital appreciation / depreciation in the value of the security due to changes in market dynamics
Debt securities are also assigned a 'credit rating', which helps assess the ability of the issuer of the securities / bonds to
pay back their debt, over a certain period of time. These ratings are issued by independent rating organisations such as
CARE, CRISIL, FITCH, Brickwork and ICRA. Ratings are one amongst various criteria used by Fund houses to
evaluate the credit worthiness of issuers of fixed income securities.
There is a wide range of fixed income or Debt Mutual Funds available to suit the needs of different investors, based on
their:
Investment horizon
Ability to bear risk

DIFFERENT TYPES OF DEBT MUTUAL FUNDS

There are broadly seven types of debt mutual funds in India.

GILT FUNDS:
Gilt funds invest in Government securities with varying maturities. Average maturities of government bonds in the
portfolio of long term gilt funds are in the range of 15 to 30 years. The fund manager in long term gilt funds actively
manage their portfolio and take duration calls with outlook on the interest rate. The returns of these funds are highly
sensitive to interest rates movements. The NAVs of gilt funds can be extremely volatile. The primary objective of Gilt
Funds is capital appreciation. Investors with moderate to high risk tolerance level, looking for capital appreciation, can
invest in Gilt Funds.

INCOME FUNDS:
Income funds invest in a variety of fixed income securities such as bonds, debentures and government securities, across
different maturity profiles. For example they can invest in 2 to 3 year corporate non convertible debenture and at the
same time invest in a 20 year Government bond. Their investment strategy is a mix of both hold to maturity (accrual
income) and duration calls. This enables them to earn good returns in different interest rate scenarios. However, the
average maturities of securities in the portfolio of income funds are in the range of 7 to 20 years. Therefore, these funds
are also highly sensitive to interest rate movements. However, the interest rate sensitivity of income funds is less than
gilt funds. Investors with moderate to high risk tolerance level, looking for both income and capital appreciation in
different interest rate scenarios, can invest in income funds.

SHORT TERM DEBT FUNDS:

Short term bond funds invest in Commercial Papers (CP), Certificate of Deposits (CD) and short maturity bonds. The
average maturities of the securities in the portfolio of short term bond funds are in the range of 2 3 years. The fund
managers employ a predominantly accrual (hold to maturity) strategy for these funds. Short term debt funds are suitable
for investors with low risk tolerance, looking for stable income.

CREDIT OPPORTUNITIES FUNDS:

Credit opportunities fund are similar to short term debt funds. The fund managers lock in a few percentage points of
additional yield by investing in slightly lower rated corporate bonds. Despite the slightly lower credit rating of the
bonds in the credit opportunities fund portfolio, on an average, majority of the bonds in the fund portfolios are rated
AAA and AA. The average maturities of the bonds in the portfolio of credit opportunities funds are in the range of 2
3 years. The fund managers hold the bonds to maturity and so there is very little interest rate risk. Credit Opportunities
funds are suitable for investors with low risk tolerance, looking for slightly higher income than short term debt funds.

FIXED MATURITY PLANS:

Fixed Maturity Plans (FMPs) are close ended schemes. In other words investors can subscribe to this scheme only
during the offer period. The tenure of the scheme is fixed. FMPs invest in fixed income securities of maturities
matching with the tenure of the scheme. This is done to reduce or prevent re-investment risk. Since the bonds in the

Volume 5, Issue 5, May 2017 Page 2

 IPASJ International Journal of Management (IIJM)
Web Site: http://www.ipasj.org/IIJM/IIJM.htm
A Publisher for Research Motivation ........ Email:[email protected]
Volume 5, Issue 5, May 2017 ISSN 2321-645X

FMP portfolio are held till maturity, the returns of FMPs are very stable. FMPs are suitable for investors with low risk
tolerance, looking for stable returns and tax advantage over an investment period of 3 years or more. They can provide
better post tax returns than bank fixed deposits and are attractive investment options when yields are high.

LIQUID FUNDS:
Liquid fund are money market mutual funds and invest primarily in money market instruments like treasury bills,
certificate of deposits and commercial papers and term deposits, with the objective of providing investors an
opportunity to earn returns, without compromising on the liquidity of the investment. Typically they invest in money
market securities that have a residual maturity of less than or equal to 91 days. Liquid funds give higher returns than
savings bank. Unlike savings bank interest, no tax is deducted at source for liquid fund returns. There is no exit load.
Withdrawals from liquid funds are processed within 24 hours on business days. Liquid funds are suitable for investors
who have substantial amount of cash lying idle in their savings bank account.

MONTHLY INCOME PLANS:

Monthly income plans are debt oriented hybrid mutual funds. These funds invest 75 80% of their portfolio in fixed
income securities and the 20 25% in equities. The equity portion of the portfolio of Monthly Income Plans provides a
kicker to the generally stable returns generated by the debt portion of the portfolio. Monthly income plans can generate
higher returns from pure debt funds. However, the risk is also slightly higher in monthly income plans compared to
most of the other debt fund categories.

KEY DIFFERENCES BETWEEN DEBT AND EQUITY:

The difference between debt and equity capital, are represented in detail, in the following points:
Debt is the companys liability which needs to be paid off after a specific period. Money raised by the company by
issuing shares to the general public, which can be kept for a long period is known as Equity.
Debt is the borrowed fund while Equity is owned fund.
Debt reflects money owed by the company towards another person or entity. Conversely, Equity reflects the capital
owned by the company.
Debt can be kept for a limited period and should be repaid back after the expiry of that term. On the other hand,
Equity can be kept for a long period.
Debt holders are the creditors whereas equity holders are the owners of the company.
Debt carries low risk as compared to Equity.
Debt can be in the form of term loans, debentures, and bonds, but Equity can be in the form of shares and stock.
Return on debt is known as interest which is a charge against profit. In contrast to the return on equity is called as a
dividend which is an appropriation of profit.
Return on debt is fixed and regular, but it is just opposite in the case of return on equity.
Debt can be secured or unsecured, whereas equity is always unsecured.

NEED OF THE STUDY

Mutual Fund industry is a rapidly growing sector in Indian Financial Market. Mutual fundinvestment is quite popular
among small and household investors, who mobilize their savingsfor investment in the capital market. India has a
majority of middle class families who wantto yield the maximum returns on their investment by taking the less risk. In
banks and postoffices investment is safe but due to lower interest rates it is less attractive while in mutualfunds through
professional and sound fund management, it reduces the risk and yield the high
rate of return on the investment. The need of present study of mutual funds cater to reduce thepast research gap and
also to update the performance of mutual funds in the current scenario.In this study, an attempt has been made to
evaluate the performance of open-ended debtschemes of public sector, private sector, banks and other financial
institutions.

OBJECTIVES OF THE STUDY

To evaluate the performance of the mutual funds, the following are the main objectives of thepresent study:
To know about types of debt mutual funds in detail.
To know, which schemes gives highest return within one-year.
To examine the risk and return component among these mutual funds.
To evaluate and compare the performance of debt mutual fund schemes ofselected companies

Volume 5, Issue 5, May 2017 Page 3

 IPASJ International Journal of Management (IIJM)
Web Site: http://www.ipasj.org/IIJM/IIJM.htm
A Publisher for Research Motivation ........ Email:[email protected]
Volume 5, Issue 5, May 2017 ISSN 2321-645X

To compare the performance of equity diversified mutual fund schemes of selectedcompaniesvis--vis the market.
To study change in investment pattern.

RESEARCH METHODOLOGY
Secondary data is taken as a basis of analysis in this research. Top five asset management companies is selected as
per AUM as on April 11, 2017.Five different types debt mutual funds from selected AMCs is selected randomly.Daily
data about the closing Net Asset Value of the selected schemes has collected from thewebsiteswww.indiainfoline.com
and www.nseindia.moneycontrol.com. The most popular and widely tracked NSESENSEX is used as a proxy for the
market. The reference period for the datais taken from March 2012 to March 2017.

DATA COLLECTION
The present study is based on secondary data which is collected from various sources likepublished annual reports of
the sponsoring agencies, online bulletins, journals, books,magazines, brochures, newspapers and other published and
online material. In this paper the performance evaluation of Indian mutual funds is carried out through
relativePerformance index, risk-return analysis. The data used is daily closing NAVs. The source of datais website
www.indiainfoline.com and www.nseindia.moneycontrol.com.

POINTS TO BE KEPT IN MIND WHILE INVESTING IN DEBT MUTUAL FUNDS:

I have judiciously followed the below points to select the best Debt mutual funds;
Funds are shortlisted based on the past performances (Returns).
Selection among the top rated 5 to 6 AMCs with a proven track record in Debt Funds segment.
Age of the funds.
Quantum of AUM (Assets Under Management)
Exit Load.
Risk Reward profile.
Various Risk / volatility related Ratios.
Based on the data available on CRISIL, Morningstar, Moneycontrol&Valueresearchonline portals.
The current investment portfolios of the funds.
The credit quality, interest rate sensitivity, modified duration & average maturity of the Funds portfolios have been
given due importance.
I have tried to identify top performing Debt mutual funds based on the Fund Categories like Liquid Debt Funds,
Short-Term Debt Funds, Dynamic Bond Funds, Gilt Funds, Monthly Income Plans etc.

Table-A: Returns (%) as on April 11th 2017

Fund name CRISIL AUM NAV 1 3 6 1 3 5
rank (inRs Cr.) mths mths mths yr yrs yrs
ICICIPru Income(G) 1 2,113.08 52.00 2.1 -1.0 1.8 10.7 12.0 9.1

ICICIPru Long Term Plan (G) 1 802.65 20.32 2.2 -0.5 2.9 11.9 12.9 11.7
UTI Dynamic Bond Fund(G) 1 901.16 19.13 1.4 0.2 4.5 13.1 11.5 10.7
Reliance Dynamic Bond(G) 2 2733.65 22.28 1.5 -1.1 1.3 9.8 8.4 9.5
IDFC Dynamic Bond Reg.Plan(G) 2 2593.21 20.08 1.5 0.9 3.8 11.9 8.9 10.0
Source: moneycontrol.com
TOP AND BEST DEBT MUTUAL FUNDS IN INDIA FOR 2017:
Below are some of the best performing and highly rated category-wise debt mutual funds:
DATA ANALYSIS:
(A) LONG TERM DEBT:

Table A represents the performance of selected long term debt schemes return for a period of 2012 to 2017
considering their first and second rank CRISILRANK.The last column shows the schemes-wise return for fiveyears in
which ICICIPru Long Term Plan (G)gives highest return of 11.7% in the year 2017 .It is followed by ICICIPru Income
(G), UTIPru Long Term Plan (G),Reliance Dynamic Bond(G) and IDFC Dynamic BondReg Plan(G)with 9.1, 10.7,

Volume 5, Issue 5, May 2017 Page 4

 IPASJ International Journal of Management (IIJM)
Web Site: http://www.ipasj.org/IIJM/IIJM.htm
A Publisher for Research Motivation ........ Email:[email protected]
Volume 5, Issue 5, May 2017 ISSN 2321-645X

Table-B: Returns (%) as on April 11th 2017

Fund name CRISIL AUM NAV 1 mths 3 mths 6 1 3 5
rank (inRs Cr.) Mths Yr yrs yrs

ICICIPru Banking 1 899.31 18.74 1.3 0.3 2.9 9.9 10.0 9.5
and PSU Debt(G)
IDFCSSIF- 1 1824.51 27.73 0.9 1.2 3.3 8.8 9.3 8.7
MTPReg(G)
L&T Short Term 2 453.86 17.45 1.0 2.1 4.3 9.9 9.5 9.3
Income(G)
HDFC Medium Term 2 1814.58 18.12 1.0 0.8 3.0 9.2 9.0 9.5
Opp (G)
Birla SL Short Term 2 3366.71 62.34 1.0 1.0 3.2 9.0 9.0 9.6
Fund (G)
Source: moneycontrol.com

9.5.and 10.0 return respectively. In all five years duration ICICIPru Long Term Plan (G) performed well compared to
others schemes.

(B) SHORT TERM DEBT:

Table B represents the performance of selected Short term debt schemes return for a period of 2012 to 2017
considering their first and second rank CRISILRANK.The last column shows the schemes-wise return for five years in
which considering First rank ICICIPru banking and PSU Debt(G) gives highest return of 9.5% in the year 2017 and if
Table-C: Returns (%) as on April 11th 2017
Fund name CRISI AUM NAV 1 mth 3 mths 6 Mths 1 yr 3 yrs 5 yrs
L rank (inRs Cr.)
Birla SL FRF- 1 1692.01 199.17 0.8 1.4 3.4 8.7 9.0 9.3
LTPReg(G)
India bulls Ultra S.T(G) 1 86.71 1580.76 0.7 1.7 4.0 8.4 8.8 9.0
Invesco India Credit 1 542.36 1859.98 0.6 1.6 3.3 7.3 8.4 8.9
Opp.(G)
Sundaram Flexi Inc- 2 5.81 23.13 0.6 1.6 3.0 6.2 7.0 7.5
STP-Retail(G)
ICICIPru Flexi Income 2 11298.67 311.89 0.8 1.6 3.7 8.5 8.9 9.2
(G)
Source: moneycontrol.com
we consider second rank Birla SL Short Term Fund (G) gives highest return of 9.6% which is high than first ranked
scheme.It is followed by IDFCSSIF_MTPReg (G), L& T Short Term Income(G) and HDFC Medium Term Opp.(G)
with 9.5%, 9.3% and 9.5% return respectively. In all five years duration ICICIPru banking and PSU
Debt(G)performed well compared to others schemes.

(C) ULTRA SHORT TERM DEBT:

Table C represents the performance of selected Ultra Short term debt schemes return for a period of 2012 to 2017
considering their first and second rank CRISILRANK.The last column shows the schemes-wise return for five years in
which Birla SL FRF-LTPReg(G) gives highest return of 9.3% in the year 2017.It is followed by India bulls Ultra
ST(G), Invesco India Credit Opp. (G), Sundaram Flexi INC-STP_Retail (G) and ICICIPru Flexi Income(G) with
9.0%,8.9%, 7.5% and 9.2% return respectively. In all five years durationBirla SL FRF-LTPReg(G) performed well
compared to others schemes.

Volume 5, Issue 5, May 2017 Page 5

 IPASJ International Journal of Management (IIJM)
Web Site: http://www.ipasj.org/IIJM/IIJM.htm
A Publisher for Research Motivation ........ Email:[email protected]
Volume 5, Issue 5, May 2017 ISSN 2321-645X

(D) CREDIT OPPORTUNITIES FUNDS:

Table-D: Returns (%) as on April 11th 2017
Fund name CRISIL AUM NAV 1 mths 3 mths 6 1 3 5
rank (inRs mths Yr yrs yrs
Cr.)
Reliance Corporate Bond 1 2358.64 13.18 1.5 1.4 3.4 10.5 --- ---
Funds(G)
UTI Income Opp.Fund 1 1570.24 14.88 0.9 1.5 3.8 9.7 10.0 ---

ICICIPru Corporate Bond 2 4493.99 25.39 1.1 1.1 3.1 9.2 10.0 9.2

KotakMed.TermReg (G) 2 2640.08 13.57 1.3 1.0 3.1 9.9 10.4 ---

Franklin(I) Low Duration 2 1697.30 18.51 0.8 2.0 4.3 9.9 9.8 9.8
(G)
Source: moneycontrol.com

Table D represents the performance of selectedCredit Opportunities Funds schemes return for a period of 2012 to
2017 considering their first and second rank CRISIL RANK.The last column shows the schemes-wise return for five
Table-E: Returns (%) as on April 11th 2017
Fund name CRISIL AUM NAV 1 mths 3 mths 6 mths 1 yr 3 yrs 5
rank (inRs Cr.) yrs
Reliance Gilt Sec. RP (G) 1 524.78 21.80 1.5 -0.9 2.7 12.5 13.0 10.8
SBI Magnum Gilt-LTP 1 925.52 36.74 1.4 -0.3 3.9 13.5 13.6 11.6
(G)
ICICIPru Gilt Inv Plan 2 431.56 33.05 2.1 -1.5 1.8 11.6 13.4 10.1
PF(G)
UTI Gilt Advantage- 2 253.39 36.76 1.5 --- 5.4 15.5 13.6 10.8
LTP(G)
L & T Gilt Fund (G) 2 116.20 41.97 1.3 -1.5 2.1 10.8 12.6 12.1
Source: moneycontrol.com
years in which Franklin (I) Low Duration (G) having second ranking gives highest return of 9.8% in the year 2017.It is
followed by ICICIPru Corporate Bond with 9.2% return respectively. If we consider the data of 1st year Reliance
Corporate Bond Funds (G) gives highest return of 10.5%.In all five years durationFranklin (I) Low Duration (G)
performed well compared to others schemes.

(E) GILT LONG TERM:

Table E represents the performance of selected Gilt Long Termschemes return for a period of 2012 to 2017
considering their first and second rank CRISIL RANK. The last column shows the schemes-wise return for five years
in which considering first rankSBI Magnum Gilt LTP (G) gives highest return of 11.6% in the year 2017and
considering second rank L&T Gilt Fund(G) gives highest return of 12.1% which is more than first ranking scheme. It
is followed by Reliance Gilt Sec. RP (G), ICICIPru Gilt Inv Plan PF(G) and UTI Gilt Advantage LTP(G) with 10.8%,
10.1% and 10.8 % return respectively. In all five years duration L&T Gilt Fund(G) performed well compared to others
schemes.

CONCLUSION:
The Mutual funds are one of the best investment source available for Indian small investors to make an investment, if
thoroughly assessed it may give big returns with little savings. The above performance ratios are very much helpful for
the evaluator to assess the funds performance. As the Mutual Fund investment is subject to market conditions,
therefore for the risk averse investors there are so many other investment alternatives available apart from the mutual
funds to avoid risk.From the above study we can conclude that due to various advantages of debt mutual funds people
are gaining interest to invest in debt mutual funds as it figuring out regular income to the investors with a minimum
risks. As well as from the abovementioned data it is evident that portfolios are immensely diversified and gaining
hugeoutcome in capital market. Thus, from this study we can observe that the rationalinvestors are more interested in

Volume 5, Issue 5, May 2017 Page 6

 IPASJ International Journal of Management (IIJM)
Web Site: http://www.ipasj.org/IIJM/IIJM.htm
A Publisher for Research Motivation ........ Email:[email protected]
Volume 5, Issue 5, May 2017 ISSN 2321-645X

debt funds rather than to invest in any otherschemes available in India. The rise in stock prices encouraged investors to
book profits and shift money to debt schemesbecause the latter will generate healthy returns when interest rates often,
fund managers said.Clearly, investors are not convinced the stock market will continue to rise, with key
indicestouching a new high this year.

REFERENCE:
1) Agrawal, D. (2006). Measuring Performance of Indian Mutual Funds.Prabandhan , 179-185.
2) Madhumathi, S. P. (2005). Characteristics & performance evaluation of selected Mutual Funds in India 9th Indian
Institute of Capital Market Conference.
3) PathakBharati V. (2008)The Indian Financial System: Markets, Institutions and Services
4) SinghJaspal (2006)Mutual Funds: Growth, Performance and Prospects,Deep and Deep publication Pvt Ltd.
5) WankhadeChanchal, Mutual Funds For All: Mutual Funds For All

WEBSITES:
1) http://economictimes.indiatimes.com/mf
2) http://www.moneycontrol.com
3) https://www.wisdomtimes.com
4) https://www.valueresearchonline.com
5) https://myinvestmentideas.com
6) http://www.indiainfoline.com

Authors:
(1) Dr. Yashavi R. Rajpara is a Faculty member of Commerce & Accountancy at SEMCOM, Sardar Patel University,
VallabhVidyanagar, Gujarat. He is actively involved in research on various topics of commerce. He has presented 54
Papers at various national/International Seminars and ha has published 29 papers, he has also authored 4 books. Under
his guidance,one student is awarded Ph.D. Degree, twostudents have submitted their thesis and at present three
students are pursuing their Ph.D. at Sardar Patel University.

(2) Ms. Pinkiben J, Nenwani is serving as an Assistant Teacher of Commerce at Charotar English Medium School,
Anand, Gujarat. She is a research scholar at Sardar Patel University and at present she is perusing her doctoral study
on the topic of A Comparative Study on the Financial Performance of Mutual Fund Schemes of Private Companies in
India

Volume 5, Issue 5, May 2017 Page 7