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Debt Funds: All You Need To Know

Author: Shashank Pawar
by Shashank Pawar
Posted: Jun 28, 2019

While speaking of investments in the share market, we often come across words that are heard of but the details of which are not known much. One such term in the market, which many want to know about is the Debt funds. Though there are various types of mutual funds, debt funds differ from them with regards to the income. Besides this, there are various formats of debt funds. If you have been wanting to learn more about the term, their types, what kind of results they yield and how beneficial they are for your portfolio, then this article shall try to answer most of the questions.

What are Debt Funds?

Debt funds are a type of mutual fund which comes under the category of fixed income instruments. This covers the corporate and government bonds, money market instruments, corporate debt securities that help in generating capital. The debt funds are, therefore, more commonly known as the Fixed Income funds or Bond funds.

The debt funds are an ideal choice for the people who are looking to generating a regular income and without taking too many risks. Debt funds lack volatility as compared to the equity and therefore, are much less risky.

Types of Debt Funds Some of the types of debt funds are enlisted in brief in the next section.

Know more about the debt funds types here:

  1. Liquid funds: As the name suggests, these funds provide maximum liquidity in the investment. These funds offer a maximum maturity period of 91 days for the instruments invested in. This is preferred by the investors who have a surplus amount which can be invested in income generating schemes.

  2. Short term and ultra short term debt funds: With the key advantage of providing a higher income with lesser risks, this fund is more popular among the younger or the new investors. The maturity period of the invested instruments is from a minimum of 1 year to a maximum of 3 years.

  3. Credit Opportunities funds: Taking risks by investing in the lesser rate instruments to give higher returns is the main feature of this fund. This can be risky at times.

  4. Dynamic bond funds: As the name goes, these funds can fluctuate or switch between portfolios to maximize the profit on investment depending on the market conditions. It dynamically switched from one to the other portfolio considering the market scenario.

  5. Fixed maturity plans: These come very close to fixed deposits in terms of the features. You can choose a scheme depending on your expectations and goals; the schemes have a lock-in period which can vary depending on the selected scheme. A mandatory investment has to be done once during the initial offer period of the scheme. However, later on, no investment is to be made.

The major difference between debt funds and equity are as follows:

In simple terms,

  • Debt holders are creditors and the funds are owned by the company whereas equity makes the investor its owner.

  • Debt funds are less riskier than equity.

  • Under debt funds, the returns can be either regular or fixed, whereas, under equity, the returns are either variable or irregular.

  • Debt funds are more of an obligation than the ownership, as opposed to the equity.

  • Knowing before investing, is a wise decision for both, long term as well as short term investments.

The debt funds are an ideal choice for the people who are looking to generating a regular income and without taking too many risks. If you have been wanting to learn more about the term, then this article shall try to answer most of the questions.

About the Author

Here's a little bit about myself. I've done a Masters in Economics and teach the subject to high school students. I am 32 years old and married to an investment advisor. A Dhoni fan who loves to play football! I am a sports enthusiast and a firm beli

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Author: Shashank Pawar

Shashank Pawar

India

Member since: Dec 24, 2018
Published articles: 38

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