5 Things to Keep in Mind Before Investing in Debt Funds
A Debt Fund is a form of Mutual Fund that contributes a part to your portfolio,
it is an investment made in a specific guaranteed return on your investments.
Types of Debt funds are as follows:
- Treasury bills.
- Gilt fund,
- Monthly income plans (MIPs),
- Short term plans (STPs),
- Liquid funds, and
- Fixed maturity plans (FMPs) Etc
Well everybody insists on investing but none of them provide the proper knowledge to do so,
however, investing in a mutual fund is an easy task, but find a mutual fund that provides,
you the higher return is difficult.
There are various investment tools but people these days are focusing on mutual funds,
because the reason being is not only the risk but also the higher returns as well as an advisor.
An expert in the field of investment will be there to provide you the financial assistance,
he will be the one who will be handling your portfolio and generate higher returns
on your investment.
Here are the 5 Things to Keep in Mind Before Investing in Debt Funds:
- Lower Risk
- Higher Return
- Taxation and
- Investment Horizon
let’s understand one by one briefly
As we all know the risk on the Mutual Fund is lower compared to all the investment
tools, the reason is there is expert advisor that looks after all your portfolio,
he makes alterations as per the changes in the market.
However, the Stocks provide the highest return compared to all the other investment tools,
but the risk is comparatively higher, the higher the risk higher the return.
Well that being said it provides a higher return compared to Fixed Deposits(FD)
and Saving Bank accounts with minimum risk.
There are few investment instruments that provide higher liquidity,
among them Debt Mutual Fund is one of them, it provides almost instant liquidity
compared to FD’s (Fixed Deposits) and RD’s (Recurring Deposits).
This is one of the best advantages of debt funds, taxation.
As we all know there is always some tax levied on the income gained.
but in the case of debt mutual funds, it is different because, in the case of others,
the tax levied is 30% of capital gain it may be either short-term or long term.
But in the case of debt mutual funds, the long-term is only taxable up to 20%.
Well, no doubt it is one of the best investment tools for investment but their certain shortcomings,
in some cases, there is a specific tenure an investor needs to invest, he cannot close it before the tenure,
or else the customer has bare some of the charges of the exit strategy.
In simple terms, we have covered the topic of “5 Things to Keep in Mind Before Investing in Debt Funds”
however, there are various other things like Expenses risk, Volatility, credit risk and yield to maturity, etc.
But above are the 5 most important things that have to be on your checklist.
[ Read More: Things to be considered While creating your portfolio ]
[ Read More: 8 Things to Do When Losing Money in Mutual Funds ]
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