If you are familiar with mutual funds, chances are you have also heard of debt mutual funds. However, this term may strike you as overwhelming or confusing since traditionally, you might have associated mutual funds as an instrument linked to the stock or equities market. Hence, the possibility of mutual funds that are instead linked to debt securities such as bonds etc. can be a new concept at first.
However, this is absolutely true. If you have already exposed your investment portfolio to equities and are likely for more stability and security with your proposed investments, you can consider opting for debt mutual funds. As the name suggests, such mutual funds see your money being invested in fixed-income instruments as compared to mutual funds linked to stock market investments.
Now, let us spend some time understanding the various types of debt funds available to you, and when you should consider them.
Types of Debt Funds
Mutual funds that invest your money in debt sector such as PSU and banking, offering you high protection from any volatilities
- Ultra-short-term/low-duration Funds
Debt mutual funds that can be withdrawn by you in a matter of hours and days, assuring you high liquidity along with no exposure to stock-marketed related risks
- Corporate Funds
Mutual funds that invest your money in corporate bonds, ideal for when you are looking at long-time performance along with no exposure to equities
Selecting the right type of debt fund
While all the above types of debt funds are viable investment options, here is a quick guide to understanding which debt fund might be best for you, basis your investment goals and needs.
|
Debt fund investment need/goal |
Type of investor |
Ideal debt fund type |
|
Emergency funds, corpus for unforeseen expenses |
Youngsters, housewives, business owners with seasonal business demands |
Overnight or insta cash debt funds for immediate liquidity |
|
Seasonal expenses, annual house repairs, yearly holiday etc. |
Salaried professionals, house wives, middle-aged couples, joint family heads |
Ultra-short term or low-duration funds which allow you to withdraw investments at a day’s notice |
|
Mid-future requirements such as school admissions, car purchase, wedding etc. |
Working couples, salaried professionals, proprietary business owners |
PSU bonds which ensure low volatility so that your returns or mid-term future plans are not impacted |
|
Future goals that are not yet on the horizon |
Working couples, salaried professionals, business owners, house wives |
Corporate bonds which can offer adequate returns to cover up for inflation |
Hence, simply understanding the various types of debt funds in context of which securities they invest in isn’t the only thing you need to do. You need to evaluate these types in context of the benefits that offer in terms of liquidity, ideal growth time horizon, and so on. This is important so that you do not have liquidity concerns at a later stage.
Clearly, when it comes to debt mutual funds, you need to dive deeper basis your personal investment requirement rather than just signing up for the best performing debt fund. This will go a long way in ensuring you have the liquidity and convenience that you require in context of your needs and goals.
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