Reasons to Invest in Debt Mutual Funds

Debt mutual funds are an investment instrument that invest in securities such as government securities, corporate bonds, commercial paper, treasury bills, PSU funds and other money market instruments. Such investment ensures steady and regular returns. Such funds are usually preferred by those who prefer lower risk instruments and have gained huge popularity in India.

Here's a list of key advantages of investing in these funds.

1. Regular Rewards

A debt fund generates balanced, fixed-interest returns on your investment. Therefore, if you are looking to earn a regular income on your investment, this could be the best choice of mutual fund schemes in India. Another way of producing an income through debt mutual funds is by opting for a Systematic Withdrawal Plan (SWP). This enables you to withdraw a fixed sum at regular intervals.

2. High Liquidity

A debt fund allows a great degree of flexibility to investors when it comes to liquidating the investment. Unlike most instruments, these funds allow you to withdraw your funds whenever you wish to. Remember that most financial instruments come with a lock-in period or a penalty on premature withdrawal. However, in case you prefer more liquid investments, you should invest in debt instruments.

3. Lower Transaction Fees

These funds usually have lower transaction fees compared to other financial instruments. They are also not subjected to TDS (tax deduction at source). But you will need to pay taxes based on the period of investment, at the time of selling the fund units. However, it still offers better returns compared to other fixed-interest instruments or your savings account.

4. Tax Benefit

Debt funds prove highly tax efficient in the longer run, making it one of the best tax-saving mutual funds schemes in India. For instance, after one year of investment, the return from a debt fund is treated as long term capital gain. Besides, the cost of investment is raised keeping the inflation in the period in mind. The longer you hold a debt fund, the higher the tax benefit you get.

5. Higher Returns

Compared to other fixed-interest instruments, these funds can provide you with higher returns. Since these instruments are influenced by the market, it might be possible to earn greater interest on your investment. Debt funds fall under the category of high-performance investments. Hence, higher potential for maximising reward.

Debt mutual funds can be a great choice of investment, especially if you are not comfortable with the risk involved in other mutual funds, such as equity funds. Choosing the right fund and keeping a long-term horizon for investment can help you maximise the benefits from such funds. It can help you earn stable and regular returns and offer a good way to diversify your investment portfolio. However, make sure you read through the policy documents and understand all the terms and conditions. Don’t hesitate to reach out to the fund provider if you have any questions. This will help you make an informed decision.