1. Summary
  2. Benefits of debt funds Liquidity
  3. Potential for higher returns than traditional investment avenues
  4. Future Ahead


A debt fund could be an investment trust theme that invests in fastened financial gain instruments, like company and Government Bonds, company debt securities, securities industry instruments, etc. that provide capital appreciation. Debt funds are said as fastened financial gain Funds or Bond Funds.

A few major blessings of investment in debt funds are low price structure, comparatively stable returns, comparatively high liquidity, and affordable safety.

Debt funds are ideal for investors who aim for normal financial gain, however, are risk-averse. Debt funds are less volatile and, hence, are less risky than equity funds. If you’ve got been saving in an ancient fastened financial gain product like Bank Deposits, and looking out for steady returns with low volatility, debt Mutual Funds may well be a stronger choice, as they assist you to succeed in your monetary goals in a very additional tax economical manner and thus earn higher returns.

Benefits of debt funds Liquidity

Unlike ancient avenues, debt funds don’t have a lock-in amount and might be saved at any time subject to applicable exit hundreds. Debt funds are thought to be liquid as they will be withdrawn on any business day. Few Liquid funds conjointly supply instant redemption facilities that permit capitalists to redeem up to ₹50,000 instantly per day per theme per capitalist.

Tax efficiency

Debt funds are often additional tax economical than ancient investment avenues. Debt funds are taxed only if they’re saved and also the tax is barely paid on the redemption return in contrast to a number of the normal avenues that deduct TDS on the interest earned each year. The dividend received from debt funds is non-exempt within the hands of the capitalist consistent with the investor’s tax block. Debt funds are often additional tax economical with LTCG (Long Term Capital Gain) of 200 at the side of the good thing about regulation once the investments are controlled for quite three years which might facilitate offer higher post-tax returns


Debt funds are comparatively less volatile than equity funds and might offer stability to an investor’s portfolio. This may facilitate diversifying who investor’s portfolio and produce down the general risk. They’re conjointly thought of to be an honest supply of comparatively stable financial gain over an amount of your time.

Potential for higher returns than traditional investment avenues

Investments in debt funds have the potential to get higher returns than ancient investment avenues Capitalists also can benefit from adjusting interest rates and will generate a financial gain by selecting the correct fund matching their risk appetency and investment horizon.

Future Ahead

 The investor’s response is a reaction also, who are selling the debt funds in hordes. It’s calculable that investors’ exposure to the Non- banking finance firms (NBFCs) and Housing finance firms (HFCs) is down by around eighteen since Sept 2018. Allow us to investigate the opposite aspect of the coin conjointly. The full assets beneath management (AUM) of debt funds are Rs 13.24 lakhs that is regarding fifty-one of the full investment trust trade Sum of Rs twenty-six lakhs. This can be substantial and underlines the religion reposed by investors in such schemes. Out of this Rs thirteen lakhs, around eightieth of the debt is within the safest investment class. Any solely a few of those Non-banking monetary firms and Housing finance firms face drawbacks relating to repayments of their debt obligations. The exposure to stressed assets of the businesses like ADAG cluster, Essel cluster, IL&FS, DHFL and Cox and Kings, etc amounted to a quarter of the debt Sum. In several cases, the reimbursement has solely been delayed and can be repaid in returning times. There are a couple of terribly sound names conjointly within the trade like Bajaj Finance and HDB Financials. There’s another excuse to cheer conjointly. The repo rate and broader interest rates are mostly been on a downtrend since 2014. In the last five years, the rates have been cut from 8.00 % to 5.75 %. This can be an awfully important reduction in the interest rates. As detailed in previous sections the decline in interest rates augurs well for the bond costs. The declining rate of interest results in an increase in the costs of bonds resulting in capital gains for bonds/ debt holders.