Why Investing in Debt Mutual Funds Can Be a Good Option?

While mutual fund investments have become popular in India, greater awareness is needed regarding debt mutual funds. Read this post to learn the many benefits of debt funds.

Debt mutual funds have been around for a while. However, many investors may not be aware of these funds and the multiple benefits they offer. So, let’s delve deeper into debt mutual funds and why you should have them in your portfolio.

What Is a Debt Fund?

First, let’s understand the meaning of debt fund. A debt fund is a mutual fund that invests in fixed-income securities such as sovereign bonds, debentures, money market instruments, etc.Debt funds are known to be less risky compared to equity funds. However, the returns from debt funds may also be lower than equity funds. Therefore, these funds may best suit investors looking for a low-risk investment option to generate a regular income or consolidate their portfolio.

9 Reasons to Invest in Debt Funds

1. Steady Return Potential

Debt-oriented funds invest in fixed-income securities, such as government bonds, with predetermined maturity dates and interest rates. So, these funds can potentially provide stable returns as they are less affected by market volatility.

2. Lower Risk Profile

Debt funds have a lower risk profile than equity funds. This makes them a good option for conservative, risk-averse investors who want capital consolidation with minimal risk.

3. Diversification


There can be times when the equity funds may not perform well due to bearish market sentiments. During this time, debt-oriented funds can shield the portfolio against market turbulences. Therefore, you can include these funds and some equity funds to diversify your investment portfolio and balance the overall risk.

4. High Liquidity

These funds are typically highly liquid, meaning they can be easily bought and sold on the stock exchange. This makes them a good option for investors needing to access their money in the short term.

5. Higher Return Potential Than Traditional Fixed-Income Investments


Conventional fixed-income products such as term deposits have been popular for those seeking steady and low-risk returns. However,  debt mutual funds can help you reach your financial objectives in a more tax-efficient manner. As a result, you can potentially earn higher post-tax returns compared to other fixed-income products.

6. Parking Surplus Fund


Debt mutual funds can be a good investment option to park your surplus fund and earn interest on it. You can use this surplus money as an emergency fund for financial or medical emergencies. Moreover, you can use these funds to achieve short-term or even long-term financial goals.

7. Multiple Options


From overnight funds with a 1-day maturity to long-duration funds with a maturity period greater than 7 years, there is a debt fund for every need. In fact, there are more than 15 different categories of debt mutual funds as per SEBI guidelines. So, you’re likely to find just the right debt fund as per your requirements.

8. Suitable for New Investors


Investors in debt mutual funds don’t have to worry about losses resulting from market volatility. Therefore investing in these funds can be a good starting point for new investors looking for low-risk options before venturing into the riskier market-linked equity funds.

9. Indexation Benefit on Long-term Investment

Long-term capital gains from debt funds are calculated after adjusting the indexation. This allows investors to lower their tax liability on the gains. However, you must hold the funds for 3 years or more to get the indexation benefit.

Simply put, a debt fund can potentially hedge your investment portfolio against unexpected market fluctuations. Therefore, you can consider allocating some of your investment corpus towards a reputed debt fund to have a well-balanced portfolio.

Sneha Shukla

Hello, This is Sneha and I am the owner of www.fullformx.com Thank you for visiting our site. Here I am creating this site only focusing to help people, also, I have 4 years' experience in this field. for quality, information stay connected with our site. Thank you

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