6 reasons to invest in debt mutual funds
(Category: Best performing mutual funds)
There are several investors who want moderate returns, want to take lesser risk, but expect higher returns than bank fixed deposits. One of the best performing mutual funds in such category would be debt mutual funds.
What are debt mutual funds?
Debt mutual funds, primarly invest in debt instruments like debentures, bonds, certificate of deposits (CD’s) of corporate companies, government bonds, government securities etc. These debt mutual funds are either long term debt funds or short term debt mutual funds. Currently these are one of the top performing mutual funds with low risk and moderate returns.
Top six reasons to invest in debt mutual funds
There are various reasons to invest in best performing debt mutual funds.
1) High returns compared to Bank Fixed deposits: The debt mutual funds in the past have provided annual returns of 8% to 12% which are higher compared to bank fixed deposits.
2) Easy Liquidity: Like any other mutual funds the debt mutual funds offer easy liquidity. If you want to sell these mutual funds, you can sell them and you can get your investment back within 2 days.
3) Good investment when interest rates are falling: Currently Indian banks have started slashing the fixed deposit rates and going forward we expect that interest rates would further fall. Under such scenario, the debt mutual funds are best options for investment.
4) Less risk compared to diversified mutual funds: Diversified mutual funds invest majority in equity and small portion in debt instruments, hence they carry high risk. However for debt mutual funds, they invest majority into debt instruments. A portion of 5% to 20% would be invested in equity markets, hence the downside of the investment is lesser compared to equity diversified mutual funds.
5) Flexibility in terms of investment or withdrawal: Like any other mutual funds, the debt mutual funds offer flexible terms for investment or for withdrawal. You can select Systematic investment plan to invest periodically or Systematic withdrawal plan to withdraw as per your requirement. Thought bank fixed deposits offer recurring deposit option for regular monthly investment, partial withdrawal or withdrawal of equal monthly installments is not available. Thought there is no entry load for such debt mutual funds, however there is exit load for many debt mutual fund schemes if you want to withdraw within 2- 3 years period.
6) Best investment option for less risk: These debt mutual funds are best investment options for those who want to participate in equity markets with small exposure, but want to take less risk and earn moderate returns.
Top performing debt mutual funds in India as of today are enclosed below.
Conclusion: Debt mutual funds are good compared to bank fixed deposits. However invest in best performing debt mutual funds for long term for getting higher returns. An investor, who want to participate in equity markets to some extent, but want to take low risk, can invest in such debt mutual funds.
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