Debt Fund is a Mutual Fund scheme that invests in fixed income instruments, such as corporate and government bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation.
A debt mutual fund invests a large amount of your money in fixed-income securities such as government bonds, debentures, corporate bonds, and other money-market instruments.
Debt mutual funds reduce the risk element for investors significantly by investing in such outlets. This is a relatively safe investment option that may help you build wealth.
Can minors invest in Mutual Funds ? Read more
What is the meaning of a Debt Mutual Fund?
A mutual fund is a type of investment that pools money from multiple investors and invests it in government securities such as stocks, bonds, fixed-income instruments, and other asset classes. A debt mutual fund invests a large amount of your money in fixed-income securities such as government bonds, debentures, corporate bonds, and other money-market instruments.
Debt mutual funds can be purchased by SIP or lump payment, but some debt mutual fund schemes (such as fixed term plans) are not available through the SIP method. Low cost structure, reasonably constant returns, great liquidity, and decent safety are just a few of the primary benefits of investing in debt funds.
Who should invest in a Debt Fund?
1. You're new to investing and don't know where to start when it comes to putting up an investment goal.
2. You're looking for a short-term project with a minimal amount of risk.
3. You want something with a slightly higher rate of return than a savings account or a fixed deposit.
4. You want to put your money into fixed-income securities with a fixed interest rate and regular interest payments.
5. You have a steady monthly income and are looking for methods to supplement it.
Benefits of investing in Debt Funds
1. Unaffected by the stock market: The stock market's volatility has no bearing on debt mutual funds. While equity markets see a lot of ups and downs, your debt fund investment is not subject to the same volatility.
2. Large amount of liquidity: Debt funds, in comparison to most other asset types on the market today, have a high level of liquidity. You can quickly withdraw money from your debt fund account at any time to meet your needs.
3. Increased profits: This is most likely one of the key reasons why debt mutual funds are such a popular investing option for many people.
4. Less Risk: Debt funds aren't risk-free like fixed deposits, but they're also not as dangerous as equity market investments.
5. Tax-effective: Debt funds turn out to be quite efficient tax savers in the long run.
If tax reduction is a crucial investment goal, you can consider investing in debt mutual funds
Want to know more about taxation of debt funds - Read here
How to invest in Debt Funds?
1. Lump sum investments: The lumpsum technique is preferred if you have a large sum of money to invest all at once. You must, however, select a fund type based on your investing timeframe or objective.
2. Systematic Investment Plans (SIP): A Systematic Investment Plan (SIP) is a good option if you want to invest small amounts of money at regular periods.
How to choose Debt Funds - MyRupaya Take
1. Avoid investing on the basis of 1 year return. 1 year is too short a period to evaluate the performance of a fund.
2. Fund size is an important factor to be considered before investing in a mutual fund.
3. Always check 3 year or 5 year performance of a mutual fund to evaluate its performance.
4. Per unit NAV is not important. What is important is change in Value of NAV = Return on investment.
Debt mutual funds are a good alternative to consider if you want a more consistent income than stocks while also limiting your exposure to market risk. Debt funds are ideal for investors who aim for regular income, but are risk-averse. Debt funds are less volatile and, hence, are less risky than equity funds.
Where will you find better results ? Difference between Debt Mutual Funds and Fixed Deposits - Read here
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