Mutual Funds are a popular investment vehicle that pools money from various investors to invest in Equities, Debts, or both. Equity Funds invest majorly in Equities and Equity-linked instruments. They can earn higher returns. However, they involve significant risk. Debt Funds are Mutual Fund Investment that invests in fixed income instruments like Corporate and Government Bonds, Treasury Bonds, Corporate Debt Securities, and other Money Market Instruments.
Several investors opt for Debt Funds as they offer reasonable returns at a lower risk. Investing in Debt Funds is ideal if you are an investor looking to earn good returns and are risk averse. These funds do not come with a lock-in period. The fixed income instruments they invest in have specific maturity period. These assets keep earning you returns till their maturity. It works like Fixed Deposit.
Benefits
Stability
The biggest reason investors prefer investing in Debt Funds is stability. They do not invest in stocks. Hence, they are safeguarded from market vulnerability. Your investment grows the same way as inflation or slightly more. The growth is slower, and your debt investments may not earn high returns as Equity Funds. But they are relatively secure and stable.
Diversification
It is commonly associated with Equity Mutual Funds. The same principle applies to Debt Funds. You can diversify your investment by contributing to various assets based on your risk appetite and investment horizon. Liquid Funds, Dynamic Bonds, Credit Risk Funds, and Gilt Funds are a few Debt Mutual Funds you can invest in.
Easy liquidity
Debt Funds do not come with a lock-in period. You can opt to withdraw your investment at any point. Plus, you do not lose out on gains. As your investment keeps earning your returns till the very day, it is redeemed. You can even withdraw your Mutual Fund Investment using Internet Banking, and the funds get credited to your account at the earliest.
Tax-efficient
These funds are highly tax-efficient. No tax deductions are applicable on gains from the investment. You are only liable to pay tax if you withdraw or sell your fund units.
- Gains from Debt Investments held for a period of less than 36 months are treated as Short Term Capitals Gains. The investor gets taxed according to their tax slab.
- Gains from Debt Mutual Funds held for a period exceeding 36 months are treated as Long Term Capital Gains and taxed at 20% after indexation.
Ideal investment choice
Most people prefer investing their money in FDs or park it in their Savings Account. These investment vehicles are great. If you want to keep your money working and earn competitive returns, consider investing in Debt Funds.
Cost-effective
Debt Mutual Funds have lower transaction fees than online Mutual Fund as their management is considerably lower.
