Types of Debt Mutual funds and rule of investment.

Debt Funds are unique in the sense is that they offer a plethora of benefits to shareholders such as low volatility, stable returns, and low tax rates Debt funds are subject to a long term capital gain tax rate of 20% after taking into account the indexation process carried on by government officials.

Indexation is simply the process of adjusting the principal amount according to the latest inflation rate in the country and computing the final tax rate that an investor is liable to pay the government upon redemption of funds from the stock market Debt Funds can give you a lot of benefits especially when you compare it with traditional saving instruments such as Fixed Deposits Whenever you park your money in a Debt Fund, an investor can typically expect returns of up to 6-8% when invested on a long term horizon.

What are debt mutual funds?

You all most probably have heard about the IPO process in which the company gets investment in return for shares. But this, not the only process by which a company can get capital the second option is loan or debt. But this debt is not taken from banks but instead from retail investors. This debt is not just taken by corporates but by government institutions too.

The government issues treasury bills, business firms issues corporate bonds, commercial paper, etc.

Debt MF companies invest in fixed income instruments such as Government securities, Treasury bills, Government and Corporate Bonds and Debentures, Commercial papers, Certificates of deposit, and other money market instruments.

What are the benefits of debt funds over Equity mutual funds?

Equity funds are for those who have a high-risk appetite. But debt funds carry less risk compared to equity funds. Your portfolio should be of the balanced type, means a combination of different proportion of equity as well as debt funds. The proportion of debt and equity funds varies according to your age.

When you are young then most of the portion say 40-50% should be in debt fund. But as you grow closer to your retirement than 60-70% of the portfolio should be in debt funds.


Why not Fixed Deposit (F.D)?

You may be thing why not invest in F.D rather than investing in debt funds. If you observe the past returns of F.D it has come down from 9% in 2000 to 5% in 2021. So the returns are not lucrative as it was before. You can see the same trend in developed economies as well. As the country develops or in the developing stage, F.D returns begin to decrease.


On the other hand, debt fund has begun to provide much better results than F.D with the same level of risk and return assurance. You don’t even have to worry about the liquidity in debt funds.




Benefits of Debt funds

  • Diversification
  • Professional expertise
  • Tax benefits
  • Convenient in getting money back and investment process.
  • Well regulated by SEBI
  • Good liquidity

Types of DEBT Mutual funds and their Risk.



We at Tstock Mantra Investments by Amruta Tushar Ghone provide complete Financial Planning for an individual i.e., Mutual Funds, Insurance planning, Retirement planning, and so on.

Read more such informative blogs on our blog page, and enhance your financial knowledge. To join our free telegram channel for valuable information, https://telegram.me/MMTC123

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