By Ezra Ivy
“Mutual fund investments are subject to market risks, read all scheme related documents carefully”
Have you ever paid attention to these advisory lines expressed to you by various means of advertisements for mutual funds? The answer certainly for most of us is a NO. These cautionary lines are not paid any importance while watching, hearing, or reading in any commercial appearance or even while buying bonds. This article will convey to you through scepticism of the debt funds in India subject, guiding you to understand the market prospects and buying funds with detailed knowledge.
People most likely prefer traditional investment options like FD’s as they offer assured and safe returns on investment. One of the immensely key options of investment that are easily ignored are – Debt funds. Debt funds in India can be a good option for investors who are sceptical to invest in equity funds. They offer several benefits but most of the investors know little about them and prefer to invest in Fixed Deposits or Recurring Deposits.
Five major benefits of investing in debt funds in India
- Low-Risk Investment Instrument:
Debt funds are the most definitive investment option for investors with a low-risk appetite. The risk factor is comparatively very low as compared to equity funds, however, the only possibility of risk is when the interest rates are bumped which is very less likely to happen. If you can’t take risks and invest your money in the stock market, you need to ensure safety and liquidity which is very much there in debt funds.
- Potential Returns:
Debt funds in India have the potential to offer wealth inclination over a period of time. They provide an assortment of long-term capital gains.
- High Liquidity:
Under some circumstances, you may not know when the need for the money will arise. But when the need occurs, you might need the money at short notice.
Debt funds come up with higher liquidity compared to fixed deposits. Fixed deposits (FD) approach with a designated lock-in period. If you put your FD into liquidation prematurely, the banker charges you a penalty. While it is not the case with debt funds. The open-ended debt funds schemes have no lock-in periods, some of the schemes hold an exit load which is charged deduction at source for early withdrawal. Open-ended debt fund schemes do not have a maturity period and are thus liquid compared to FDs.
- Lesser Tax than FDs:
If you fall under the 20% or 30% tax bracket, then debt funds make more sense for you when compared to fixed deposits. The fixed deposit interest will be added to your income, and taxed at the tax bracket you are falling under. Debt funds in India held for more than 3 years are considered as long-term and taxed at 20% after indexation. Also, dividends received from a debt fund are tax-free in the hands of the investor.
- Portfolio Stability:
Investing in debt funds can also maintain the balance of your portfolio. Equity funds while offering higher return potential can be volatile in the short term. This is because the returns on equity funds are linked directly to the performance of the stock market. By investing in debt funds, you can diversify your portfolio and bring down overall risk.
Debt funds in India are a safer investment medium to plan for short-term goals. They have a stable cash flow and also offer the benefits of liquidity and tax efficiency over traditional investment options. They are in betterment for investors having short to medium-term financial needs. Planning to invest in debt mutual funds? Don’t neglect to read the terms and conditions carefully and make a smart investment choice with the information provided.
