Debt funds: Safest investment with great returns, know the complete plan

Debt funds: Safest investment with great returns, know the complete plan

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Debt fund Investment: Debt funds are actually mutual funds or exchange-traded funds. Debt funds can invest in short term or long term bonds, securities or floating rate debt. The main objective of the fund is to provide returns to the investors through safe investments. These funds are less risky than equity funds. They have nothing to do with the ups and downs in the equity market. Debt funds are also called liquid funds. Because there is no problem of liquidity in it. That is, you can withdraw your money whenever you want.

Usually, investors’ money in such schemes is invested in government securities, bonds and corporate debentures. However, the returns from such funds are lower as compared to equity funds. These funds are less risky than equity funds. They have nothing to do with the ups and downs in the equity market.

Banking and PSU debt funds can be a good option for investors looking for debt schemes with good credit quality and relatively less affected by interest rate risk.

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Lower risk, better returns
Debt funds help in earning better returns with less risk. Because investing in Mutual Funds is considered to be the most profitable deal. It has often been seen that Debt Mutual Fund gives more returns than Fixed Deposit.

Investors whose income is not stable, they should invest a major part in debt funds. So that their investment is more secure and they can withdraw their money when needed. If you are planning to invest for a long time, then you should invest in equity funds. But for short duration debt funds are a better option. Investors should not expect high returns in debt funds. The money from debt funds is invested in bonds giving fixed returns.

There are different categories of debt mutual funds. Some schemes invest in short-term securities. So, some schemes invest money in long term bonds.

Income from Debt funds comes under the purview of tax. Redemption of debt funds after 3 years attracts Long Term Capital Gains Tax (LTCG). Short term capital gains tax is payable on profits made from selling debt mutual fund units before 3 years.

Tags: investment scheme, Investment tips, Mutual funds, Personal finance

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