What are the debt funds and its benefits?

What are the debt funds and it's benefits?

Today I’m going to discuss with you what are debt funds and their benefits, most beginner investors have some doubts about debt funds through this blog I will share some pieces of knowledge about the debt fund. Debt funds are one of the investing tools and also you will get a fixed return from it, so there is no volatility like the share market. Some peoples want a fixed return and expect low risks, who expect lower risk and fixed return from investing, the debt fund is affordable for them. In the debt fund, you can’t expect higher returns because I already said this is the fixed return investment and also this is not a share market, so here you can’t expect higher returns. Most beginner investors investing into the debt fund with lack of financial knowledge this is the major mistake done by the investors so before going to invest in any funds, you have to improve your financial knowledge well otherwise you will face some risks in future. Treasury bills, debentures, bonds, etc. these are examples of debt instruments.

How the debt fund works

How the debt fund works, you have to understand how the debt fund works. Here the fund manager will decide where to invest your money which debt instrument makes more returns, these are all kinds of investment strategies and decisions will take by the fund manager. Long-term investing Is always good for any investment, so you always have to invest in the long term.

Who can invest in debt funds?

Who can invest in debt funds? this Is also one of the major doubts of most beginner investors. Who wants to diversify the investment portfolio he/ she can invest into the debt fund? At least you have to invest 20 – 30% of your income into the different asset classes, so the debt fund is also one of the asset classes, so before going to invest in any debt instrument or equities you have to make the best investment decision.

Duration for the debt funds

Duration for the debt funds you have to know about it well, here you have short term, midterm, long term. You can prefer any kind of investing duration, and here you can expect 7 – 9% liquidity from it so before going to take any decision about the investing, you must have proper knowledge about it.

Types of debt funds

Here you have types of debt fund options based on maturity like

1. Short term - Ultra short term funds – Who don’t want volatility or risk he/can prefer this fund.

2. Midterm – Here you can choose a dynamic bond fund, where the fund manager strategies will fluctuate because of the volatility of credit rating.

3. Long term – Gilt fund – is the example of the long term fund and the securities issued by the government so it is secure for the investor.

These are the types of debt funds based on maturity.

Credit opportunity funds

Credit opportunity funds Are one of the debt funds and this is also a risk fund because this is based on credit rating so here you have to make the best decisions always.

Fixed maturity plan – Here have a lock-in period for this, and you can’t expect a higher return from it.

What are the things you have to consider before going to invest in a debt fund?

Some things you have to consider before going to invest in debt funds like – credit risk, interest risk, here you have to understand one thing that is – When the interest rate may go higher then the bond price will fall, so you must consider the interest rate, and finally return and expense ratio. These are things you must consider before going to invest in debt funds.

Summary

Debt fund investing is good for those who want to diversify their port folio. Before going to invest in any type of fund you must have proper knowledge about it, otherwise, you may face many risks there.

I’m not your financial advisor I shared some piece of knowledge about it so before going to take any investment decisions you must have proper knowledge about it.