Duration: First see if the fund manager's mandate is what suits you. You cannot have an investment horizon of 45 days and invest in a long-term debt fund (see: What risks does your fund manager take?).
Returns: Is the fund generating higher returns than its peers? Check the portfolio. It could well be that the fund manager is compromising on quality of paper to generate those extra returns (see: What risks does your fund manager take?).
Size: In the debt market, on an average, the minimum lot size is around Rs 5 crore while the minimum ticket size in a primary issue could be Rs 50 crore. Hence a very small fund is at a distinct disadvantage. On the other hand, a large-sized fund may be in a position to strike better deals but if faced with huge redemptions, the market might not have adequate depth to bail it out. Avoid the two extremes.
Costs: Expenses have a significant impact on the relative performance of debt funds. It's important to see that your debt fund does not have the highest expense ratio while delivering just about average or below-average returns. The spread of returns, especially in big short-term fund categories, is very narrow. A small difference in return can significantly change the ranking. For example, among institutional ultra short term funds, 1-year returns of around 20 of the 49 funds is stacked in a range of 0.40 per cent.
