Best Debt ETFs to Invest in India

Fixed-income investment options are very limited in the Indian investment universe. And bonds, etc., are the concepts which are not very familiar to retail investors. But thanks to the evolution of debt ETFs in the Indian market, now a retail investor can easily invest in Debt ETFs through their demat and trading account.

In today’s blog post, we will give you an overview of the best Debt ETFs to invest in India, along with the key benefits of investing in them.

What are Debt ETFs?

A debt ETF is a type of exchange-traded fund offered by asset management companies which primarily invests investors’ money in bonds or fixed income securities such as government bonds, corporate bonds, etc., having different maturities. They are traded on the stock exchange like any other stock; therefore, one is required to have a demat account to invest in Debt ETFs.

Features of Debt ETFs

The key features of debt ETFs are as follows:

1. Fixed Income: Debt ETFs invest investors’ money in fixed-income securities such as corporate bonds, government securities, etc.
2. Less Risk: As the investment is made in fixed income securities and they are less volatile and provide a more stable return.
3. Demat Account: As ETFs are traded on the stock exchange, hence demat account is mandatory to invest in ETFs, you can easily open your Demat & Trading account on Pocketful and start investing seamlessly.
4. Low Cost: ETFs generally have lower fees compared to other actively managed debt funds.

Types of Debt ETFs

There are various categories of Debt ETFs; a few of such types are mentioned below:

1. Gilt ETFs: Gilt ETFs invest only in Government securities with 5 or 10 years’ maturity. 
2. Corporate Bonds ETFs: The Corporate Bond ETF invests investor money in bonds issued by different corporations.
3. Money Market ETFs: These ETFs invest in different debt securities having a maturity of up to one year. 

Read Also: Best ETFs in India

List of Best Debt ETFs

Below is the list of Debt ETFs based on the last year’s returns:

S. No.	Funds	1 Yr Ret (%)
S. No.	Funds	1 Yr Ret (%)
1	Aditya Birla Sun Life US Treasury 3-10 year Bond ETFs FoF – Regular Plan	12.43
2	Aditya Birla Sun Life US Treasury 1-3 year Bond ETFs FoF – Regular Plan	10.83
3	BHARAT Bond ETF – April 2031	9.23
4	BHARAT Bond ETF – April 2030	9.05
5	BHARAT Bond ETF FOF – April 2032 – Regular Plan	9.02
6	BHARAT Bond ETF – April 2032	8.93
7	BHARAT Bond ETF – April 2033	8.74
8	ICICI Prudential Nifty 5 yr Benchmark G-SEC ETF	8.7
9	Nippon India ETF Nifty 5 yr Benchmark G-Sec	8.5
10	BHARAT Bond ETF FOF – April 2033 – Regular Plan	8.48
11	UTI Nifty 5 yr Benchmark G-Sec ETF	8.13
12	Motilal Oswal Nifty 5 year Benchmark G-Sec ETF	8.12
13	Nippon India ETF Nifty 8-13 yr G-Sec Long Term Gilt	7.69
14	Mirae Asset Nifty 8-13 yr G-Sec ETF	7.66
15	SBI Nifty 10 yr Benchmark G-Sec ETF	7.36
16	Aditya Birla Sun Life CRISIL 10 Year Gilt ETF	7.35
17	ICICI Prudential Nifty 10 yr Benchmark G-Sec ETF	7.28
18	UTI Nifty 10 yr Benchmark G-Sec ETF	7.12
19	Axis Nifty AAA Bond Plus SDL Apr 2026 50:50 ETF	7.06
20	Aditya Birla Sun Life CRISIL Broad Based Gilt ETF	6.97

How Do Debt ETFs Work

Debt ETFs work like any other ETFs issued by asset management companies. The fund collected from the investors is invested in the category of bonds in which it belongs. The fund manager of debt ETFs tries to replicate the performance of the underlying securities. The asset management company charges a nominal fee for managing the investment.

Benefits of Investing in Debt ETFs

The key benefits of investing in Debt ETFs are as follows:

1. Diversification: The investment in a debt ETF by an investor instantly diversifies into numerous fixed-income securities, which reduces the risk related to investment in an individual security.
2. Economical: As debt ETFs track the performance of the underlying security, they do not require any expertise from a fund manager.
3. Liquidity: As they are traded on a stock exchange like a stock, therefore one can easily liquidate them during the market or trading hours.

Read Also: Top 10 Smart Beta ETFs in India

Risk of Investing in Debt ETFs

The risks related to investing in Debt ETFs are as follows:

1. Interest Risk: Whenever the interest rate in the economy fluctuates, the debt ETFs are sensitive to such rate movements.
2. Credit Risk: This risk refers to the situation where the issuer of the securities faces a credit rating downgrade. If this happens, the value of ETFs will fall. 
3. Tracking Error: However, debt ETFs tend to replicate the returns of underlying securities. Still, due to various factors such as expense ratios and cash holdings, there might be differences, which is known as tracking error.

Who Should Invest in Debt ETFs

Investment in debt ETFs is suitable for the following investors:

1. Conservative Investor: Investment in debt ETFs is suitable for conservative investors who want stable returns in their portfolio.
2. Low-Cost Investment: Investors seeking low-cost investment options in the debt category of mutual funds can consider investing in ETFs.
3. Market Savvy Investors: Only those investors who have a demat account and are comfortable with investing in debt ETFs can invest in it.

Read Also: Best Liquid ETFs in India 

How to Invest in Debt ETFs

To invest in debt ETFs, one can follow the steps mentioned below:

1. Trading and Account: To invest in a Debt ETF, one is required to have a trading and demat account with a broker. You can open a lifetime free demat and trading account with Pocketful.
2. Choosing ETF: Thereafter, you are required to choose the ETF into which you want to invest; this depends on your investment objective and risk profile.
3. Adding Funds: Then you must add funds to your trading account to purchase such an ETF.  There are various options, such as NEFT, RTGS, etc.
4. Purchasing: Once the fund starts to reflect in your account, you can execute the buy order to purchase the ETF of your choice.

Conclusion

On a concluding note, Debt ETFs are one of the most efficient and convenient methods of investing money in debt-related instruments. There are various debt ETFs available in the market from which you can choose a suitable one for you based on your investment objective and risk profile. They also carry certain risks, such as tracking error, interest rate risk, etc. Therefore, it is advisable to consult your investment advisor before making any investment in Debt ETFs.

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