loader2
Partner With Us NRI

Four benefits of investing in debt mutual funds

A debt fund is a mutual fund which invests mostly in fixed income instruments like government securities, corporate bonds or treasury bills. These instruments give you a fixed rate of return at the end of a fixed period. In essence you are giving the bond issuer a loan, which it promises to repay with interest. Here are four significant benefits of investing in debt mutual funds.

Here are four benefits of investing in debt funds

  1. Stable returns:

    Debt funds are more likely to give a stable rate of return without dependence on market sentiments. So, if you have a low appetite for risk they offer a safer option. Or, if you want to plan for a specific financial goal within a certain timeframe, debt funds are your best bet.
  2. Hedge against volatility:

    Debt funds can offer you a good hedge against the volatility of the equity market. The percentage of debt in your portfolio will depend on your financial plans and timelines, and your ability or willingness to take risk. This diversification helps stabilise your investment returns.
  3. High liquidity:

    Debt funds can be liquidated easily and you can cash out of your investment much quickly than most other investment instruments, including fixed deposits that come with mandatory lock-in periods and attract penalty for premature withdrawal. ­So, if you think you might need extra funds in case of a medical or personal emergency or want to park extra funds for short duration, do consider debt funds.
  4. Lower Fees:

    Debt funds have lower transaction fees compared to equity and other mutual funds. Unlike FDs, which are also low-risk investments that most investors consider, debt and other mutual fund schemes do not attract TDS. However, you will pay taxes based on the period of investment if you sell fund units. They generally offer better returns compared to fixed deposits or your savings account.

Risk factors:

It is important to remember however, that unlike bank deposits, debt MFs are not entirely free of risk. For instance, a change in interest rates could impact your investment. The corporate whose bond your fund may have invested in could collapse due to unforeseen reasons. Or they could be facing a liquidity crisis, which obviously puts your investment at risk. Over a longer term the returns on debt are likely to be far lower than the equity market, a debt fund therefore is good if you want to play safe and have a fixed financial objective and timeline in mind. Or if you have surplus funds in your savings account which could get more interest from debt.


Disclaimer: The contents herein mentioned are solely for informational purpose and shall not be considered as an invitation or persuasion to trade or invest. I-Sec and affiliates accept no liabilities for any loss or damage of any kind arising out of any actions taken in reliance thereon

Most Popular

  • 21 Jan 2022
  • ICICI Securities

Physical Delivery of Stock Options

As per SEBI circular, starting October 2019, it was mandatory for all Stock F&O contracts to be physically settled. Before October 2019 all contracts held till expiry used to be settled in cash.

  • 20 Jan 2022
  • ICICI Securities

SEBI circular on Segregation and Monitoring of Collateral at Client Level

In order to further strengthen the mechanism of protection of client’s collateral from the twin problem of -  misappropriation/misuse and default by the Brokers (also called Trading Members or TM) & Clearing Members (who settle all transactions- CM) - the Securities and Exchange Board of India (SEBI) had issued a circular on July 20th, 2021 directing brokers to put systems and processes in place to mitigate the risk of misappropriation or misuse of client’s securities/funds available with the Trading Member (TM).

  • 18 Jan 2022
  • ICICI Securities

Upcoming Union Budget 2022: F&O Trading and Risk Management Strategies you Should Note to Manage Risks Better

The Union Budget of India, also referred to as the Annual Financial Statement in Article 112 of the Constitution of India, is the annual budget of the Republic of India. The Government presents it on the first day of February so that it could be materialized before the beginning of new financial year in April.

  • 17 Jan 2022
  • ICICI Securities

TCS announces Rs 18,000 crore share buyback: How can Investors benefit from the opportunity?

Tata Consultancy Services Limited board on 12th Jan, 2022 approved a proposal to buy back upto 4,00,00,000 Stocks for an amount not exceeding Rs 18,000 crore at Rs. 4,500 per share. 

  • 12 Jan 2022
  • ICICI Securities

What is a Bond Ladder? & How to Use it to gain from Debt Funds?

Investing in bonds that mature on different dates makes a bond ladder. Read on to know how to make gains from debt funds using a bond ladder.

  • 12 Jan 2022
  • ICICI Securities

The shoe must go on! An overview of the Indian footwear industry

The Indian footwear market has seen many changes in customer behaviour towards footwear.

  • 12 Jan 2022
  • ICICI Securities

Is a 50:50 investment in Large-Cap & Mid-Cap Funds a good idea?

Large-Cap vs Mid-Cap asset allocation can be tricky, especially when the market is experiencing some headwinds. Developments and economic cues can either push the market indices higher or push them off a cliff.

  • 11 Jan 2022
  • ICICI Securities

Demerger in Motherson Sumi Systems Limited: Implications on your F&O positions

Motherson Sumi Systems Limited has fixed a Record Date of January 17, 2022 for the purpose of issuance and allotment of 1 equity share of Motherson Sumi Wiring India Limited for every 1 equity shares to shareholders of Motherson Sumi Systems Limited.

  • 11 Jan 2022
  • ICICI Securities

NSE to launch Futures and Options for Nifty Midcap Select Index from 24th January

F&O Trading has evolved in India with F&O volumes now contributing to more than 95% of overall NSE volumes. F&O volumes in NSE have nearly doubled in FY 22 compared to FY 21 same time.

  • 09 Jan 2022
  • ICICI Securities

Demerger in GMR Infrastructure : Implications on your F&O positions

GMR Infrastructure Limited has fixed a Record Date of January 12, 2022 for the purpose of issuance and allotment of 1 equity share of GMR Power and Urban Infra Limited for every 10 equity shares to shareholders of GMR Infrastructure Limited.