Debt funds generate potentially stable returns by lending money to issuers in exchange for periodic interest payments and the return of the principal amount at maturity.
New Delhi: In this festive season, are you looking for investment options? While there are many options such as Debt Funds and Equity Funds for quick returns, however, you need to check well before going ahead with investing in one of the funds.
In general, debt funds are a category of mutual funds that primarily invest in fixed-income securities like bonds, government securities, debentures, and money market instruments. Notably, these debt funds aim to generate potentially stable returns by lending money to issuers (corporations, governments, banks, etc.) in exchange for periodic interest payments and the return of the principal amount at maturity.
What Types Of Debt Funds Are There?
Liquid Funds: Liquid funds are stable and people primarily invest in short-term debt instruments with a maturity of up to 91 days.
Ultra-Short Duration Funds: In this, people invest in debt instruments with a slightly longer maturity period than liquid funds, such that the Macaulay duration is between 3 to 6 months.
Short-Term Debt Funds: People who are looking for investments for 1-3 years, short-term debt funds can be a suitable option.
Income Funds: In Income funds, people invest with a medium-term investment horizon. They also invest in a diversified portfolio of debt instruments, including government securities and corporate bonds, with varying maturities.
Main Features Of Debt Funds
Relative Stability And Predictability: Debt funds offer stability and predictability which can be comforting, especially for those with lower risk tolerance.
Relatively Steady Cashflow: People who are looking to generate a potentially steady cashflow from investments, debt funds can be a suitable option. Several debt funds distribute Income Distribution cum capital withdrawal (IDCW) at regular intervals, such as monthly, quarterly, or semi-annually.
Risk Management: Various types of debt funds offer different kinds of risk levels, letting you to tailor your investments to your risk tolerance. If people want low-risk options, they can opt for liquid funds or gilt funds.
Convenience And Accessibility: Investors must note that investing in debt funds is hassle-free and they can start with relatively small amounts, often as low as Rs 1,000, and the process can be done either through a distributor, or online through various fund houses and investment platforms.
It should also be noted that the debt funds offer an attractive proposition for investors who are seeking stability, cashflow, and diversification.
