Different Types of Debt Funds

Proper mutual fund strategies are essential to your financial goals. There are many types of mutual fund schemes available for investors. Each scheme depends on the investors’ risk tolerance, financial goals, and capital availability. Two types of mutual funds are most popular among both new and seasoned investors: the equity mutual fund and the debt fund.

Let’s learn more about debt mutual funds, their differences from equity fund schemes, and the various schemes that are available under them.

What is a debt mutual funds? A debt mutual fund is a scheme that guarantees you a fixed income for the duration of your investment. For those looking for a steady source of income, with lower risks and higher investment returns, the debt fund is a safe option. Meaning, you can invest in securities, government bonds, Non-convertible debentures, etc. You don’t have to fear losing your money in the stock market.

These securities are less risky, so they won’t have any adverse effects on your regular income goal.

Debt mutual funds are also different from equity funds. Debt mutual funds are slower and more steady in terms of safety and returns. Equity funds, which invest mainly in company shares and stocks, enjoy the idea and love to research and make high-profitable returns.

Let’s examine the differences between equity and debt mutual funds to better understand them.

  • The units of Risk Debt funds are not subject to any risk factors. Government bonds, securities, as well as corporate units, are not subject to market risks, making them safer investments for new investors. Equity funds are, however, open to currency fluctuation, changes in tax rates, and other economic factors. To combat equity funds’ volatile nature, one must have a high level of risk management skills.
  • Nature Debt funds are a pool of money from passionate investors. They invest the money in corporate and government-oriented securities and bonds. Investors receive a fixed income that is profitable and low risk. Equity funds, unlike debt funds, invest the money in company shares and stocks. This is after extensive portfolio research to identify units that will best suit the investor’s financial goals.

Let’s now look at the various types of debt funds an investor can choose from, and start their investment journey.

  • Liquid Funds These liquid funds are ideal for investors looking for higher returns on their investments. These funds mature in 91 days and offer high liquidity benefits in cash, or cash value.
  • Short-Term Debt Fonds
    If you are looking for a short-term investment opportunity (minimum. This scheme is a great option for those who want a 1-year maturity with stable fund status via bonds and debentures. This fund is also very low in risk compared to the market.
  • Gilt FundsGilt fund investments in government securities are very safe. They are highly rated and therefore a good investment option.

These are the types and categories of debt funds you can invest in, depending on your investment goals. Debt mutual funds are the best option for those looking for a long-term, steady investment in mutual funds.