When it comes to financial planning, many often look to strike a balance between safety and returns. Conventional savings investment products such as National Savings Certificates (NSC), Public Provident Funds (PPF) and fixed deposits (FD), have been highly favored owing to their safety features. However, they often fail to offer high returns. Here’s where debt fund investments come into play. They come across as an essential alternative for those eyeing to enhance their returns while enjoying the capital preservation feature.
What is a debt fund? Why should you make debt fund investments?
Debt funds investment primarily invest your surplus funds in fixed-income instruments like corporate bonds, government bonds, and various other debt securities. They are crucial components of a well-diversified portfolio, offering a route to earn considerably higher returns than conventional investment options.
The distinct debt fund types include overnight funds, liquid funds, ultra-short-term duration funds, low-duration funds, money market funds, short-duration funds, medium duration funds, medium to long duration funds, long duration funds, dynamic bond funds, corporate bond funds, credit risk fund, banking and PSU funds, gilt funds, and floater funds.
Here’s how debt mutual funds can offer better returns than traditional savings instruments –
Higher returns potential
One of the key advantages of debt mutual funds is their potential to provide higher returns than traditional savings options. While FDs, PPFs, and NSCs offer fixed interest rates, debt funds are actively managed by experienced fund managers who can capitalise on interest rate movements and credit opportunities. This active management can lead to potentially higher returns over the long term.
Liquidity and flexibility
Debt mutual funds provide liquidity and flexibility that traditional savings options often lack. You can liquidate your investments partly or totally at any time, making it simpler to access your investments in the case of changing financial goals or any exigency.
Debt funds invest in a wide range of fixed-income securities, spreading the risk throughout distinct issuers and maturities. This diversification helps mitigate the impact of default risk and interest rate fluctuations, making debt funds a more secure investment option. You can also choose from various types of debt funds which are suitable for different investment horizons.
Regular income options
Debt mutual funds may offer regular income options through features like systematic withdrawal plans (SWP). This can be especially beneficial for retirees or those seeking a steady stream of income while still benefiting from potential capital appreciation.
How to invest in debt funds?
Investing in debt mutual funds is now more accessible than ever, thanks to the convenience of mutual funds online. To begin, select a suitable debt fund, complete your KYC online, choose your investment mode (lump sum or SIP), and transfer funds from your bank account through the online platform.
While traditional savings options such as FDs, PPF, and NSC have their merits, it is essential to explore other avenues for potentially higher returns. Debt mutual funds offer a compelling alternative, providing the opportunity to earn better returns, maintain liquidity, diversify your portfolio, and even generate regular income.