Debt Mutual Funds are Funds that invests in a mix of debt or fixed income securities such as Treasury Bills, Government Securities, Corporate Bonds, Money Market instruments and other debt securities of different time horizons. Debt Securities gives a fixed rate of interest & have a fixed maturity date.Depending on the Mutual Fund, return (Comprise of Interest & Capital Appreciation/Depreciation) of a Debt Mutual Fund varies around 6% to 10%.
To check the ability of the issuer of the securities (to pay back their debt over a certain period of time) Debt Securities are assigned a Credit Rating. Various Independent Organizations like CARE, CRISIL, FITCH, Brickwork and ICRA issues these ratings. To check the credit worthiness of issuers of fixed income securities various criteria are used & this Credit Rating is among one of them.
Investors invest in Debt Mutual Funds based on their ability to bear risk & their investment horizon.
Different Types Of Debt Funds
Liquid Funds / Money Market Funds
Ultra Short Term Funds
Floating Rate Funds
Short Term & Medium Term Income Funds
Income Funds, Gilt Funds and other dynamically managed debt funds
Corporate Bond Funds
Benefits of investing in Debt Mutual Funds
The various benefits of investing in Debt Mutual Funds are listed below –
Your investments are not affected by equity market volatility
Debt Mutual Funds invest in a range of interest bearing instruments such as Treasury Bills, Government Securities, Corporate Bonds, Money Market Instruments and other debt securities.
Add stability to your investment portfolio
As Debt Mutual Funds mainly invest in debt securities, they are relatively more stable than equity investments. They can also lend stability to your equity portfolio by reducing the risk associated with your complete investment portfolio.
Freedom to withdraw your money when required
All open ended mutual funds give you the freedom to withdraw your money as and when required, although your investments may be subject to an exit load. Close ended mutual funds have a defined maturity date. Such funds are listed and can be traded on the stock exchange.
Indexation adjust the purchase value of your investment to indicate the impact of inflation, while calculating long term capital gains tax for investments held for over 1 year.