Skip to content
logo
  • Cryptocurrency
  • Finance Tips
  • Investing
  • Make Money Online
  • Work From Home
  • Quiz
  • About Us
  • Privacy Policy
Debt Mutual Fund

What are Debt Mutual Funds and their types?

Posted on January 5, 2022February 7, 2022 By Pallavi Joshi No Comments on What are Debt Mutual Funds and their types?
Investing

Debt funds that invest in securities that generate a fixed amount of income like corporate bonds, commercial papers, treasury bills, government securities and many more money market instruments. All of these instruments have a maturity date that is pre-decided and an interest rate that the buyer can earn on maturity, therefore the name fixed-income securities.

Debt mutual funds are also considered low risk since the returns generated from such securities are not affected by the market fluctuations and trends.

Different types of Debt Mutual Funds

On the basis of its maturity period, debt funds can be categorised into the following types:

  1. Money market funds

Funds that invest in the money market instruments with a maturity period of not more than a year. They are good for investors that seek low-risk debt securities for a short period of time.

  • Liquid fund

Funds that invest in money market instruments with a maximum maturity period of 91 days. They tend to offer better returns than savings accounts and are a good alternative for a short-term investment.

  • Corporate bond fund

These types of funds invest a minimum of 80% of their total asset in corporate bonds that have the highest ratings. They work well for investors with lower risk appetites and who want to invest in high-quality corporate bonds.

  • Dynamic bond fund

Another type of debt mutual fund is the dynamic bond fund. They invest in debt instruments that have varying maturity dates on the basis of the interest rate regime. They are suitable for investors that have moderate risk tolerance and an investment horizon of 3 to 5 years.

Benefits of investing in Debt funds

  1. Offers a stable income: Debt funds have the potential to offer capital appreciation over a period of time. While debt funds come with a relatively lower degree of risk than equity funds, the returns are not guaranteed and are subject to market risks.
  2. Tax efficiency: if tax reduction is a feature you are looking for, debt mutual funds is just the right direction you are looking towards. This is because debt funds are more tax-efficient than traditional investment options like Fixed deposits (FDs).
  3. High liquidity is offered: Debt mutual funds have no lock-in periods, however, some funds can exit load which is a charge that is deducted at the source for premature withdrawals. The exit load may vary from fund to fund where you may come across some funds with no exit loads at all.
  4. Flexibility: debt mutual funds offer you the option of moving your money to different funds. This is possible through a Systemic Transfer Plan (STP). this way, you can spread the risk of equities over a specified period of a few months rather than investing the entire amount at one point. Figuratively, it prevents “putting all your eggs in one basket”.
  5. Stability: investing in mutual debt funds can increase the balance of your portfolio. By investing in Debt funds, one can adequately diversify a portfolio and bring down overall risk, thereby “cushioning the downside”.
Tags: Finance Tips Investing Personal Finance

Post navigation

❮ Previous Post: What are ELSS and its features?
Next Post: What is TDS Refund and how to claim it online? ❯

You may also like

Investing
401(k) vs. IRA: How to Choose The Best Retirement Account for You
July 14, 2022
stocks
Finance Tips
Emerging Blue Chip Stocks in India
December 8, 2021
Themes for Investing
Investing
Investment Themes to look for in 2022
February 28, 2022
Investing
Gold ETF vs Gold Mutual Fund vs Sovereign Bonds
March 26, 2022

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

You may also like:

  • What is RBI’s Digital Rupee?
  • Top Money Management Apps
  • Loan Settlement and How Does It Affect Your Credit Score?
  • How to avoid the Debt Trap?
  • Essential Tips for Money Management
  • Buy Now Pay Later vs Personal Loan vs Credit Card
  • Google Pay: Check Limit On Daily Remittance Across India
  • Tax Saving Bank FD Vs Post Office TD: Where Should You Invest To Earn High Returns?
  • Exhausted Section 80C? Here Are Other Ways To Save More Taxes
  • LIC IPO 2022
  • What is FIRE- Financial Independence/Retire Early
  • Beginner’s Guide: Decentralised Finance (DeFi)
  • How To Choose The Best Term Life Insurance Policy?
  • How To Buy, Sell and Gift Digital Gold Through Airtel Payment Bank?
  • What Elon Musk would do with Twitter
  • What Can You Do in Decentraland’s Metaverse?
  • Investing lessons from Raamdeo Agrawal
  • How to Calculate Your DeFi, NFT, and Airdrop Taxes for 2022
  • How to Become Eligible for Token Airdrops
  • Investing tips from V. Vaidyanathan
  • Cryptocurrency
  • Finance Tips
  • Investing
  • Make Money Online
  • Work From Home
  • Quiz
  • About Us
  • Privacy Policy