Debt income funds rule the roost in 2016

Even as the equity markets in India struggle to stay in the green over the past one year, the debt income funds have managed to outperform several of the equity funds posting double digit returns.

The year 2016 was marred by heightened volatility and major events such as the US presidential election, Brexit and demonetisation drive, among others, all of which did have an impact on the markets leading to a steep fall in the stock prices.

The strengthening of the USD as indicated by the Dollar Index which stands at 103.29 as on 21 December may lead to foreign investors exiting the Indian markets along with other emerging markets.

The FIIs have been on a selling spree and it is expected that there will be some pressure on equity prices in 2017 as well.

In such a volatile scenario, the debt income funds as a category have been able to deliver good returns. In fact, few of the funds have been able to deliver double digit returns.

Debt funds such as ICICI Prudential Banking & PSU Debt Fund, Birla Sun Life Treasury Optimiser Fund, DHFL Pramerica Medium Term Income Fund, Kotak Medium Term Income Fund and L&T Resurgent India Corporate Bond Fund are some of the top performing debt income funds that have delivered more than 10 per cent returns over a one year period.

The lowering interest rate environment aided by the gush of liquidity into the system has enabled these funds to do well.

The performance is interesting as several of the top performing equity funds managed to clock single digit returns in 2016.

Whether 2017 will be a repeat of 2016 when it comes to debt income funds generating returns higher than Sensex is difficult to forecast. However, the headwinds for equities remain strong and it warrants a decent exposure to debt income funds for a year or two.