Debt Funds

What are Debt Funds?

A type of mutual funds that invests mainly in fixed income-generating securities like corporate bonds, treasury bill, commercial papers and money market instruments. You can include debt funds in your investment portfolio if your risk appetite is low and is looking for stable returns.

Why should you consider investing in debt funds?

Stable returns: The issuer pre-determines the interest the investor will be paid on maturity. Thus, they are known as fixed-income securities. 

Flexibility: It offers you flexibility in the form of SIPs. You can invest small amounts of money regularly through SIPs. 

Safer than equity: The returns on investment in debt funds are not dependent on the market volatility. Thus, they are safer than equity investment. 

Tax benefits: The profit generated due to long-term investment is taxed with indexation benefit thus reducing your tax outgo. 

Which debt funds are good investments?

Debt funds are ideal risk-averse investments for investors. Debt mutual funds allows investors to spread their investments across various types of debt securities, thus to maximize the investment returns while minimizing the risk. Although you cannot predict the actual returns like FDs, it usually falls within a predictable range. These investments are best suited for investors wants liquidity and is interest to invest in-between the short and medium investment horizon.

Thus, when it comes to deciding you must consider your two factors as primary indicators – liquidity and investment horizon. As an investor, if your aim is to establish a regular income stream or invest for small time periods then debt fund can be your ideal choice.

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