Traditionally mutual funds are divided into three main types namely – equity funds, debt funds and hybrid funds. Each of these mutual funds has a minimal amount of risks. However, the debt mutual funds are the closest that comes with practically no-risk possibility.
The main aim of the debt mutual fund is to offer its investors a steady income post the maturity period. Thus, it becomes crucial to choose a time limit that is in line with that of the fund.
In India, there are a plethora of debt funds that offer duration directly from the fund houses or a third-party or via online. The online medium, however, allows the investors to check out the performance of the funds concerning its interest rates and return rates. This will keep you informed of the market fluctuations and will help you choose funds that are less effective with this volatile nature of the market.
Working of the debt fund:
The primary reason behind opting for a debt fund is that you get to earn interest income and capital appreciation. This interest earned on the debt securities is in a way pre-decided concerning the timeline. Post this, the debt securities mature.
Because you regularly earn from the debt securities, they are known as “fixed-income”. The debt mutual funds diversified across different types of protection. This helps to a decent return even during dicey economic fluctuations.
Following we mention some of the reasons why you should look at debt funds for investment.
• Less risky:
Unlike other funds available in the market debt funds are considered to be less risky. They also give decent inflation-beating returns along with tax benefit.
• Decent returns:
The returns that are received in debt mutual funds are both – decent and predictable. Say, if you have got a target or a goal, which you are planning to achieve in the short-term, say for one year or 2 years, then debt funds are the ideal place to invest. Generally, debt funds are less volatile when compared to equity funds and with the predictable returns you can safely plan for your goals and achieve your objective of creating a financial corpse here.
• Constant income:
Debt income funds offer more liquidity than others and thus when the need for urgent cash arises, these funds let you withdraw whole or partial amount as per your needs and requirements. Debt funds are the ideal place to keep your emergency reserve as they can be redeemed at will.