Summary:
Long-term debt funds can be a good way to generate income and build wealth over time. Here are India's top 5 long-term debt funds for 2023, based on their performance, expense ratio, fund size and other factors.
You've probably come across the term "company bonds," but "bond funds" might be new to you. Let's break it down: Bond funds are a type of debt fund. Simply put, they're where you lend money to businesses or governments. In return, they promise to pay back the borrowed money with some added interest after a certain time. And when we talk about long-term bond funds, we mean those bonds that mature in more than ten years.
Comparing bond funds with other financial instruments
Bond funds fall under the category of debt funds. While both aim to provide regular income, debt funds might invest in shorter-term securities. On the other hand, Fixed Deposits (FDs) are considered safe, but bond funds offer the potential for better returns due to market-linked performances. However, they come with slightly higher risks.
Now that we have a basic understanding, let's discuss the parameters we used to determine the top five long-term bond funds of 2023.
Key parameters for ranking bond funds
While all bond funds might appear similar at first glance, they vary significantly in risk, return, and their fit for individual investors. To make a wise investment choice, it's crucial to assess these funds using the following parameters:
- CAGR (for INR 1000 invested for a year): Compound Annual Growth Rate (CAGR) gives you the smoothed annual growth rate, taking into account the effect of compounding. It helps you understand how the value of your investment grows over time.
- Assets under management (AUM): This represents the total market value of the investments managed by the fund. A larger AUM can indicate that the fund is widely trusted and has a good track record.
- Expense ratio: It is the cost of running the fund and it is expressed as a percentage. A lower ratio means you're paying less for the management of the fund.
- Exit load: If you decide to take your money out of the fund before a set time, this is the fee you might have to pay. It's always good to know this upfront.
The top 5 long-term debt funds in India for 2023
Here are 5 debt funds that have consistently outperformed the market over the long term and are popular among investors:
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Axis Long Duration Debt Fund Direct-Growth
| CAGR | AUM | Expense ratio | Exit load |
| 8.59% | INR 1,061 crore | 0.21% | 0% |
This fund takes the first spot due to its impressive CAGR of 8.59% and a substantial AUM of INR 1,061 crore. It charges a competitive expense ratio of 0.21% and has no exit load. As the newest fund on our list, it primarily focuses on long-duration assets and has consistently delivered strong returns in a short span.
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ICICI Prudential All Seasons Bond Fund Direct Plan-Growth
| CAGR | AUM | Expense ratio | Exit load |
| 7.98% | INR 10,915 crore | 0.62% | 0.25% if redeemed within 1 month |
ICICI's fund stands out because of its varied portfolio. It has a strong CAGR of 7.98% and holds a leading AUM of INR 10,915 crore, the highest on our list. The fund has been around for a while, consistently performing well. It charges an expense ratio of 0.62%, and if investors pull out within a month, they pay a small exit load of 0.25%. Its long-standing success and trustworthiness make it a second pick.
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LIC MF Bond Fund Growth
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| CAGR | AUM | Expense ratio | Exit load |
| 7.24% | INR 203 crore | 0.21% | 0.25% if redeemed within 15 days |
Another fund that made its debut 10 years ago, it offers a CAGR of 7.24% and an AUM of INR 203 crore. It has the distinction of the lowest expense ratio at 0.21% among the list and an exit load of 0.25% if redeemed within 15 days. The fund primarily invests in medium to long-duration bonds, with a significant portion in government securities.
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UTI Bond Fund Direct-Growth
| CAGR | AUM | Expense ratio | Exit load |
| 6.74% | INR 315 crore | 1.63% | 0% |
Launched half a decade ago, this fund manages assets worth INR 315 crore and offers a CAGR of 6.74%. Its expense ratio is 1.63%, but it compensates investors by having no exit load. The fund's strategy leans towards longer durations, aligning with investors looking for steady returns over extended periods.
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ICICI Prudential Long Term Bond Fund Direct-Plan-Growth
| CAGR | AUM | Expense ratio | Exit load |
| 6.66% | INR 661 crore | 0.76% | 0% |
Last in our ranking is ICICI Prudential Long Term Bond Fund Direct-Plan-Growth. It boasts a CAGR of 6.66% and manages an AUM of INR 661 crore. With an expense ratio of 0.76%, it stands out by having no exit load. This fund predominantly invests in high-rated government and corporate bonds, ensuring a blend of safety and growth.
Wrapping up: Key points to remember
- Long-term bond funds allow investments in both businesses and governments. These funds add variety to your investment mix and reduce dependency on one asset type.
- While bond funds offer the potential for better returns, they come with associated risks, especially when compared to traditional fixed deposits. Always assess individual risk appetite before investing.
Disclaimer
The investment options and stocks mentioned here are not recommendations. Please go through your own due diligence and conduct thorough research before investing. Investment in the securities market is subject to market risks. Please read the Risk Disclosure documents carefully before investing. Past performance of instruments/securities does not indicate their future performance. Due to the price fluctuation risk and the market risk, there is no guarantee that your personal investment objectives will be achieved.