What are Debt mutual funds: Debt mutual funds are a safe option for investors who are looking for better returns than bank FDs. However, they are not completely risk-free. Investments over three years attract lower tax rates.
Tax Benefits of Debt Mutual Funds: Amidst market volatility and increasing caution of investors, debt mutual funds are emerging as a safe option. Especially for those investors who are looking for better returns than bank FDs, but are not willing to take risks.
What are debt mutual funds?
Debt funds are mutual funds that invest investors’ money in fixed income instruments like government bonds, corporate bonds, fixed deposits. Their aim is to give safe returns to investors. There is less risk in these as compared to the stock market, because they invest in such instruments where a fixed interest is received.
For whom are debt mutual funds beneficial?
If you want to earn more than bank FDs but do not want to take the risk of the stock market, then debt funds are a good option. However, debt funds are not completely risk-free. If the company whose bond you have invested in defaults or there is a sudden change in interest rates, then the returns may be affected. Therefore, it is important to understand the credit rating and portfolio of the fund before investing.
What are the types of debt mutual funds?
- Liquid Fund: You can withdraw money immediately
- Corporate Bond Fund: Invests in bonds of companies
- Long Term Fund: Good returns for long term
If you invest for more than three years, the tax is less because it gets the benefit of indexation. Overall, debt funds are good for those who want to keep their money safe at low risk and expect some better returns than FD.
How to invest in debt mutual funds?
To start investing in debt mutual funds, you have to decide your investment objective, then after completing the KYC process, you can invest through SIP (monthly investment) or lump sum. It is very important to choose the right fund, like liquid fund (in which you can withdraw money immediately) or long term debt fund (which can give better returns in the long term).
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