Index Fund Corner
Sponsored
| Scheme Name | 1-Year Return | Invest Now | Fund Category | Expense Ratio |
|---|---|---|---|---|
| Axis Nifty 50 Index Fund | +32.80% | Invest Now | Equity: Large Cap | 0.12% |
| Axis Nifty 100 Index Fund | +38.59% | Invest Now | Equity: Large Cap | 0.21% |
| Axis Nifty Next 50 Index Fund | +71.83% | Invest Now | Equity: Large Cap | 0.25% |
| Axis Nifty 500 Index Fund | — | Invest Now | Equity: Flexi Cap | 0.10% |
| Axis Nifty Midcap 50 Index Fund | +46.03% | Invest Now | Equity: Mid Cap | 0.28% |
This performance can be attributed to both domestic macroeconomic stability and favourable global conditions that have raised expectations of rate cuts.
“An anticipated rate-cut cycle, along with India’s strong macroeconomic fundamentals, has led to a positive outlook for debt funds in 2024,” said Mahendra Kumar Jajoo, CIO – Fixed Income at Mirae Asset Investment Managers (India).
Performance in numbers
A look at how liquid funds fared in the last one year:
| Fund Name | Regular Plan 1-Year Return (%) | Direct Plan 1-Year Return (%) |
| 360 ONE Liquid Fund | 7.21 | 7.26 |
| Aditya Birla Sun Life Liquid Fund | 7.38 | 7.52 |
| Axis Liquid Fund | 7.41 | 7.49 |
| Bajaj Finserv Liquid Fund | 7.34 | 7.52 |
| Bandhan Liquid Fund | 7.33 | 7.47 |
| Bank of India Liquid Fund | 7.46 | 7.5 |
| Baroda BNP Paribas Liquid Fund | 7.31 | 7.45 |
| Canara Robeco Liquid Fund | 7.39 | 7.47 |
| DSP Liquidity Fund | 7.4 | 7.51 |
| Edelweiss Liquid Fund | 7.36 | 7.56 |
| Franklin India Liquid Fund | 7.41 | 7.48 |
| Groww Liquid Fund | 7.38 | 7.49 |
| HDFC Liquid Fund | 7.36 | 7.43 |
| HSBC Liquid Fund | 7.37 | 7.48 |
| ICICI Prudential Liquid Fund | 7.39 | 7.49 |
| Invesco India Liquid Fund | 7.4 | 7.47 |
| ITI Liquid Fund | 6.94 | 7.11 |
| JM Liquid Fund | 7.27 | 7.38 |
| Kotak Liquid Fund | 7.33 | 7.46 |
| LIC MF Liquid Fund | 7.42 | 7.47 |
| Mahindra Manulife Liquid Fund | 7.38 | 7.5 |
| Mirae Asset Liquid Fund | 7.37 | 7.49 |
| Motilal Oswal Liquid Fund | 6.92 | 7.08 |
| Navi Liquid Fund | 6.94 | 7 |
(Source: AMFI)
A look at how long duration funds fared in last one year:
| Scheme Name | 1-Year Return (Regular) | 1-Year Return (Direct) |
| Aditya Birla Sun Life Long Duration Fund | 11.99% | 12.72% |
| Axis Long Duration Fund | 12.99% | 13.43% |
| HDFC Long Duration Debt Fund | 13.52% | 13.92% |
| ICICI Prudential Long Term Bond Fund | 11.33% | 11.92% |
| Nippon India Nivesh Lakshya Fund | 12.84% | 13.18% |
| SBI Long Duration Fund | 13.21% | 13.72% |
| UTI Long Duration Fund | 12.39% | 13.39% |
(Source: AMFI)
So, why debt funds have outperformed in 2024?
Debt fund performance in 2024 can be traced to several factors, including fiscal discipline, low current account deficit, and core inflation hovering within the 4-6% range.
A significant development this year was India’s inclusion in global bond indices, which improved demand-supply dynamics for government bonds.
According to Jajoo, “India’s inclusion in the global bond fund index has made a notable difference, with demand for government bonds now outpacing supply.”
Global economic trends also supported the debt category, particularly the decline in inflation across many countries.
“Falling inflation globally has played a key role in bolstering debt fund performance,” Jajoo noted.
Interest rate cuts: A critical factor for debt funds
While the Reserve Bank of India (RBI) has kept rates on hold in 2024, the anticipation of global rate cuts has had a ripple effect on domestic debt markets.
“Strong domestic fundamentals combined with global interest rate cuts have led to a flattening of the yield curve,” explained Jajoo.
The long-duration funds benefitted from expectations of rate cuts, while short-duration funds saw strong demand due to high credit pickup, which generated attractive yields.
“Long-duration funds, in particular, have outperformed this year due to the rate cut cycle on the horizon,” said Jajoo.
The expectation of a rate-cut cycle in India has led to higher returns from these funds.
Nehal Meshram, Senior Analyst at Morningstar Investment Research India, explained that investors are currently favoring funds with shorter maturity profiles, such as corporate bond funds, low-duration funds, and short-duration funds, for temporary placements.
How inflation and the global economy shaped debt fund returns
After the supply shocks of the pandemic and inflation spikes driven by the Russia-Ukraine conflict, 2024 marked a turning point.
Inflation globally started to ease, and unemployment rates began to rise, signalling potential growth slowdowns. These factors created an environment where debt funds could thrive.
“The easing of inflation and rising unemployment globally have contributed positively to debt fund returns this year,” Jajoo explained.
Retail investors: Missed opportunities in debt funds
Despite the favourable conditions, many retail investors have missed out on the gains from debt funds in 2024.
“Debt as an asset class is often underutilised by retail investors. They tend to stick to traditional investment options, missing the higher accruals and potential alpha that debt funds offer,” Jajoo said.
He pointed out that debt funds, despite their inherent volatility, present an opportunity for investors to diversify and achieve better returns compared to traditional investments like fixed deposits.
“Many retail investors still don’t fully understand the dynamics of the debt market. As a result, they tend to overlook it, missing out on valuable opportunities,” Jajoo added.
What should investors do going forward?
For those looking to capitalise on current market conditions, debt funds still present an attractive opportunity. As the global interest rate cycle continues to evolve, investors can benefit from adding debt funds to their portfolios.
However, Jajoo emphasised the importance of understanding one’s risk appetite and consulting with a financial advisor before making any decisions.