What is debt fund?

Debt funds are one of the most popular mutual funds from investment point of view, which reduce the risk and maintain a balanced fund portfolio. Debt funds are a golden bird without any risk for investors who want a fixed income on their investments on an annual basis.

Debt Funds, also known as Fixed Income Funds, primarily invest in fixed-interest securities to generate regular income and grow revenue. The investment objective of debt funds is to provide regular and steady income to the investors.

Such schemes invest in fixed income securities such as bonds, corporate debentures, government securities and money market instruments such as Certificates of Deposit (CDs), Commercial Papers (CPs), Treasury Bills etc. All these instruments have a pre-defined maturity date and interest rate.

Mutual fund houses pool money from several investors and form a corpus. Debt mutual funds are considered safer than equity funds and hybrid funds. You can earn money by investing in different types of debt funds.

Debt funds offer higher interest rates than traditional investments like bank FDs which makes these funds ideal for earning regular income. There are different types of investors in the stock market who want to earn money by investing in equity, debt, hybrid funds as per their investment capability.

While there is no guarantee that any mutual fund scheme will achieve its goals due to risk factors and ever-volatile markets, debt mutual funds manage their risk by choosing investment instruments with least risk. try to reduce.

Role of Credit Rating in Debt Funds

Debt Funds are one of the safest investment instruments available for investors who want to earn optimum returns without venturing into risky avenues. Also, the returns here are quite stable unlike the returns from equity funds.

Each debt security has a credit rating that helps investors understand the returns and performance of the funds chosen for investment. Debt funds have the potential to generate high risk-adjusted returns. However, one point to be noted is that the fund NAV may change due to changes in interest rates.

Debt fund managers use these ratings to pick high-quality debt instruments. Higher rating means the fund is less risky and has performed well. Every investor should check the ratings and performance of that mutual fund before investing.

Should I invest in debt mutual funds?

YesDebt funds are considered to be the most popular option for investment and these funds provide stable returns on your investment but before investing money you should get basic information about them like –

• How was the last performance of that fund?
• What is risk factor?
• What is maturity period? And
• Other factors that depend on your investment capability and fund plan.

Capital appreciation is an important objective for these funds. These funds are less risky than equity mutual funds, hence the returns are also lower as compared to equity mutual funds.

You should plan about your investment goals and savings. If you are looking to invest with a short term (1-3 years) goal and objective, then these funds are a good option.

Debt funds are considered suitable for investors who want low risk and steady income. Debt Mutual Funds are generally divided into various securities to ensure stable returns.

Investors can invest for short term, medium term and long term depending on their investment capacity. Debt mutual funds try to give stable returns with low risk, generally better than Fixed Deposits (FD).

If you know when and how to invest in debt funds, then debt funds can be a great investment opportunity.

Debt funds are viewed as a favorable investment option as they try to provide stable returns with low risk, better than other investment options like fixed deposits.