Best Debt Funds
Debt funds, as the name indicates, are a category of mutual funds that invest mainly in the debt asset class consisting of bonds issued by PSU banks and other NBFCs, corporate bonds, government-issued bonds and its different agencies such as the RBI, the National Highway Authority, etc. Most top debt funds also invest in securities on the money market such as Treasury bills, bank CDs, and trading documents on the market.
Every type of debt fund meets a distinct set of customer requirements. For an investor, the best debt funds are those that cover as many of their needs and investment goals as possible.
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Debt Mutual Funds FAQs
+What is a Debt Fund?
A debt fund is a mutual fund scheme that invests in fixed income instruments, such as Corporate and Government Bonds, corporate debt securities, and money market instruments etc. that offer capital appreciation. Debt funds are also referred to as Income Funds or Bond Funds.
+Who should invest in a Debt Fund?
Debt funds are ideal for investors who want regular income, but are risk-averse. Debt funds are less volatile and, hence, are less risky than equity funds. If you have been saving in traditional fixed income products like Term Deposits, and looking for steady returns with low volatility, debt mutual funds could be a better option, as they help you achieve your financial goals in a more tax efficient manner and therefore earn better returns.
+How Debt Funds are different from other Mutual Funds?
In terms of operation, debt funds are not entirely different from other mutual fund schemes. However, in terms of safety, they score higher than equity mutual funds. For instance, when the market falls, the NAVs of your equity funds fall sharply, whereas in case of debt funds, the fall is not as sharp. Having said that, debt funds can offer only moderate returns, while equity funds, which are highly risky, offer high returns over longer time horizon.
+What is the tax implication on Debt Mutual funds?
If the investment holding period is more than 3 years, it is considered as long term investment and if investment holding period is less than 3 years, it is considered as sort term investment.
Long-term capital gains on debt fund are taxable at the rate of 20% after indexation. Indexation is a method which involves factoring the rise in inflation from the time of purchase to sale of the units. Long-term capital gains on debt fund are taxable as per the income tax individual slab rates.