Debt Funds...the name is alien to many people. Yet, majority are investing in Debt instruments – Insurance policies, Fixed Deposits, PPF, Postal schemes...to name a few. Debt instruments are any investment schemes that earn an interest, primarily by using investor money to give loans (Debts). Today we will take a quick look at Debt Mutual Funds.
How are Debt Mutual funds different from other instruments like Fixed Deposits?
1) Tax Efficient – Debt funds are treated under Capital Gains category - which means the interest earned on Debt funds are not entirely taxable. This makes Debt Funds attractive to income tax payers.
2) Diversification – A single Debt Funds invests in various debt papers like Government Treasury bills, Corporate Bonds, PSU bonds etc. This, in my opinion, reduces the risk on the money invested. Compare this to the risk associated when the entire money is invested in one bank!.
3) Transparency – Does your bank tell you how they have used your money? How many loans are doing well and how many have defaulted? Well, in Debt Funds there is greater transparency on these aspects and the details are easily available on the website.
Debt funds are interesting; however, I would advise you to research well before investing. There are various parameters to consider before choosing a debt fund. Better still, consult a financial advisor well-versed with Debt funds.
Augustine Mendez
Chief Service Officer, Freedom Factory.
NISM-Series- V-A certified MFD,
IRDA certified Life and Health Insurance advisor
www.freedomfactory.in
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