Are you looking for relatively safer debt funds to invest in the New Year? If so, you should check bank debt funds and PSUs. These plans are mandated to invest at least 80% of their corpus in debt investments of banks, public sector companies and public financial institutions.

These plans have offered returns of 3.55% over the past year. The borrowing programs have not had a great year and this is reflected in the returns.

Advisors say bank debt programs and PSUs are “relatively” safe because they only invest in banks and PSUs. Since most of these entities are government backed or owned, they have no credit risk. As you know, the debt market was rocked by downgrades and defaults not too long ago. Many conservative investors stopped investing in loan programs because they were afraid of getting their money back.

However, that does not mean that these diets are risk free. For example, these programs invest in papers from private banks. Since they do not have the support of the government, they carry a certain risk. However, since banks are highly regulated, the risk is minimal. In addition, changes in interest rates can have a negative effect on these plans.

If you are investing for three years and are aware of the risks associated with these programs, you may want to consider investing in banking and PSU programs.

Best bank funds and PSUs to invest in 2022:

  • IDFC Banking & PSU Debt Fund
  • Axis Banking & PSU Debt Fund
  • Aditya Birla Sun Life Bank Debt Fund and PSU
  • DSP Banking & PSU Debt Fund
  • Kotak Banking Debt Fund and PSU

Methodology: used the following metrics to screen for debt mutual fund programs.

Average sliding returns: Rolled daily for three years.

Consistency over the past three years: Hurst Exponent, H is used to calculate the consistency of a fund. The exponent H is a measure of the randomness of a fund’s NAV series. Funds with a high H tend to exhibit low volatility compared to funds with a low H.

i) When H = 0.5, the return series is called a geometric Brownian time series. This type of time series is difficult to predict.

ii) When H

iii) When H> 0.5, the series is said to be persistent. The larger the value of H, the stronger the trend of the series

The downside risk: We have only considered the negative returns given by the UCITS for this measure.

X = returns below zero

Y = Sum of all squares of X

Z = Y / number of days taken to calculate the ratio

Downside risk = Square root of Z

Outperformance: Fund return – Benchmark return. The rolling daily rolling returns are used to calculate the return of the fund and the benchmark index, then the active return of the fund.

Asset size: for debt funds, the threshold asset size is Rs 50 crore

(Disclaimer: Past performance is no guarantee of future performance.)

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