Traditionally mutual funds are divided into three main types namely – equity funds, debt mutual 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 mutual 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 mutual fund:
The primary reason behind opting for a debt mutual 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.
#Benefits of Debt Mutual Funds:
1) More liquid than FDs
A primary advantage of debt mutual fund is its liquidity. These funds allow you to withdraw your money at any time and from anywhere.
You can also make partial withdrawals, without breaking the entire investment. The procedure for removing investment from debt mutual funds is far more comfortable.
2) Tax efficient
In the long term, debt funds are tax efficient. After about a year of investment made, the income from a debt fund is treated as a long term capital gain and is taxed at either 10% or 20% after indexation.
3) No loss
Another beauty of investing in the debt mutual fund is that there is no loss. Technically and practically, as an investor, you don’t lose even a day’s growth when you invest in an open-ended debt fund.
So, debt mutual funds make for an excellent long term investment if you wish to reap decent benefits out of it. It is also a great fund to support your plans.