As an investor you should look into the following important parameters while choosing to invest in a debt fund:

Average maturity of the fund:

These gives the average maturity of all the securities held in the portfolio of a debt fund. For example, if a debt paper in the portfolio has a maturity of one year, another two years and another three years, provided an equal sum is invested in each of the three papers, the average maturity is two years.

Duration:

This is the measure of the price sensitivity of the fund portfolio to a change in interest rates. Funds with a longer duration would be more sensitive to a change in interest rates. For example, if the modified duration of the fund is seven years and the interest rates are expected to go down (or up) by 1%, the net asset value (NAV) of the fund is likely to go up (or down) by 7%.

Yield:

The yield is a measure of the interest income generated by the bonds in the fund's portfolio. For example, bonds having face value of Rs 100 and coupon of 6% per annum is currently trading in market at Rs 110, then the yield that would be earned if the bond is held till maturity is 5%.

In a stable interest rate scenario, this can be considered as an approximate measure of the returns that the fund can generate. While in a falling interest rate scenario, this is not likely the true measure to know the fund returns, because it does not take in consideration the trading gains that the fund may generate.

Credit Rating:

It indicates the credit worthiness of the borrower. Rating houses like Crisil, Icra and others give rating to the securities issued by the issuers like companies and banks and are held by debt funds in their portfolios. Credit profiles of the debt fund portfolio point toward the level of credit risk that the debt fund has assumed. Higher the ratings, lower is the risk in the portfolio.

Taxation:

Long-term capital gains in debt mutual fund schemes will be derived only if the investments are held for more than 36 months. The long-term capital gains tax is 20% with indexation benefit. Short-term capital gains from debt funds are at tax slab rates of the individual investor.

Debt fund plays an important role in the portfolio at different age groups. At young age, one has to invest into equity but also needs to have debt exposure which gives a cushion from the equity volatility and liquidity requirements.

As you approach towards your goals, use Systematic Transfer Plan (STP) from equity funds to debt funds. This will help to reduce the instability in the corpus you need to source your family goals.

1.ICICI Prudential Tax Plan

2.Reliance Tax Saver (ELSS) Fund

3.HDFC TaxSaver

4.DSP BlackRock Tax Saver Fund

5.Religare Tax Plan

6.Franklin India TaxShield

7.Canara Robeco Equity Tax Saver

8.IDFC Tax Advantage (ELSS) Fund

9.Axis Tax Saver Fund

10.BNP Paribas Long Term Equity Fund

You can invest Rs 1,50,000 and Save Tax under Section 80C by investing in Mutual Funds

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