SIP In Debt Funds

SIP is an investment technique typically associated with Equity mutual funds which works on the principle of rupee cost averaging.

The rupee cost averaging concept in equity SIPs can work also in debt funds, but to a smaller extent.

As the market interest rates go up and down, the NAV of debt funds also tend to move.

Suitable for:

  • SIP mode works for any traded asset class which has even the slightest element of volatility and where long-term outlook shall be positive.
  • Investing via SIP in debt funds is more beneficial for investors who do their debt allocation through bank deposits but are willing to switch for better returns.
  • Those who wish to invest money in debt Funds, but can make small investments systematically.
  • Those who tend to invest in a bank recurring deposit can look at SIP in debt mutual funds because bank RDs are fully taxable, whereas you can get the benefit of long-term capital gain tax benefit in debt mutual funds.

Taxation benefit over Bank Deposits

Generally, debt funds have given equal returns as bank FDs and if you add the advantage of the following points, it can be a substitute for opening RD in a bank.

  • Rupee cost averaging
  • LTCG tax benefit i.e., when the holding period is 3 years or more-20% on Capital Gains
  • Added Indexation benefit

Which debt fund category to choose?

There are ample debt schemes that can fetch rupee cost averaging benefit.

All debt categories can be considered for SIP.

Graphical Representation:

 SIP returns of Debt Funds:

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*SIP returns (XIRR) are in percentage.

Observation: We can observe that given Debt Funds have given Returns ranging from 7.6%-10.3%.

Trend of Investment Growth of Debt Funds:

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Observation: These funds are depicting a positive trend movement over a period of 9 years, hence SIP in Debt funds are capable of fetching an average return between 8% & 9%.   

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