DEBT FUND

What is a Debt Fund?

Buying a debt instrument can be considered as lending money to the entity issuing the instrument. A debt fund invests in fixed-interest generating securities such as corporate bonds, government securities, treasury bills, commercial paper, and other money market instruments. The fundamental reason for investing in debt funds is to earn a steady interest income and capital appreciation. The issuers of debt instruments pre-decide the interest rate you will receive as well as the maturity period. Hence, they are also known as ‘fixed-income’ securities.

Features of a debt fund

Here are the key benefits of investing in these funds:

Immune from market volatility: Unlike equity mutual funds, a debt mutual fund is not subject to market conditions. Investments are made in securities with a fixed maturity period and a rate of interest.

Stabilise your portfolio: Since the risk associated with debt instruments is lower than equity instruments, these schemes provide stability to your portfolio.

Great for new investors: New investors usually start with a low-risk appetite. Debt mutual funds serve as a great avenue of investment for such investors. There is steady returns without the fear of losing it all due to markets crashing.

High liquidity: Investment in these funds can be good way to invest surplus cash to build an emergency reserve. If you are in need of urgent liquidity, you can always redeem the investment.

Helps to achieve investment goals: Debt funds have a fixed maturity period and offer low but steady returns. If you have a short term investment objective for building a corpus for an upcoming expense, debt mutual fund is a great option.