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ToggleMutual funds are among the most popular investment avenues in India. The rising popularity is mainly owing to their professional management, returns, and the fact that there is a mutual fund for everyone. Whether a risk-loving investor, a risk-averse investor, one who prefers investing sectorally, or one who likes to follow a particular stock market index, the vast array of mutual funds serves all. One such famous category of mutual funds is Debt Mutual Funds. Let’s explore debt funds in detail in this article.
Let’s now understand the debt funds meaning in detail. Debt funds are mutual fund schemes that pool money from various investors to put them in fixed-income securities. Fixed income securities are investment instruments that provide a fixed yield or interest rate.
Now, since there are varied fixed-income securities, there are various types of debt funds –
Since debt funds are a type of mutual fund, they pool money from different investors, subsequently investing them in securities that provide fixed returns in the form of an interest income. These fixed-income securities also include bonds issued by medium-sized businesses, which are sometimes unavailable to individual investors. Thus, a debt fund serves as an investment medium for retail investors to invest in them. Let’s understand this better with the help of an example. Mr. A wishes to invest Rs. 50,000 in a debt fund, and his risk appetite is medium. Moreover, he does not need his investment to be highly liquid. Considering the investment profile of Mr. A, he can choose to invest in a medium-duration fund such as XYZ Strategic Bond Fund. Therefore Mr. A gets to invest in bonds through mutual funds.
Debt funds help you by adding a diversification factor to your portfolio, lowering your portfolio risk. They also allow you to enjoy a steady flow of income while bearing a low-moderate risk. You can quickly identify the risk level of a debt fund by checking its PCR Matrix.
The Class I Debt Funds feature Class the lowers interest rate risk, and Class III Debt Funds feature the highest interest rate risk. Similarly, debt mutual funds categorized as Class A carry the lowest credit risk, and those in Class C feature the highest credit risk
In December 2021, the market regulator, the Securities and Exchange Board of India (SEBI), mandated that all fund houses provide a Potential Risk Class (PRC) matrix with all their mutual fund schemes. A PCR matrix of a debt mutual fund scheme features three interest rate rows – Class I, Class II, and Class III. It also has three credit risk columns – Classes A, B, and C.
Investing is an essential element in the process of management of your personal finance. In this process, debt funds come in handy as they provide your portfolio with the required debt exposure and take advantage of diversification.
Here are some key benefits you can enjoy by investing in debt funds:
Jupiter Money’s Return on Investment Calculator is an easy-to-use tool that you can make use of by following the below-mentioned steps –
That’s all; once you fill all the required fields, a pie chart will be displayed on the left side of the screen with details like your investment gain, your return on investment, absolute return, and CAGR.
Jupiter Money’s Return on Investment Calculator helps you by offering the following features:
Debt funds are an ideal investment option if you wish to enjoy a steady flow of income while facing a relatively lower risk than equity and balanced funds. Moreover, mutual funds do somewhat better than traditional fixed-income investment instruments like fixed deposits in terms of returns and liquidity.
Also, a wide array of debt funds allows you to invest your hard-earned money in this investment avenue per your investment style and risk appetite. Debt funds are a great investment option if you are risk averse and want to enjoy a regular income flow without actively managing your investments.
No. Two types of risks come with a debt fund – credit risk and interest rate risk. However, this risk is shallow and sometimes even negligible with some debt funds like overnight and liquid funds. But, other debt funds like long-duration and dynamic funds feature a risk element.
SIP stands for a Systematic Investment Plan, a method of investing in mutual funds. If you opt for a SIP in a debt fund, you can invest small amounts at regular intervals instead of a lump sum amount.
Short-term gains earned over a debt fund investment are taxed per your income tax slab. Long-term gains from a debt fund are taxed at a rate of 20% with indexation.
Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.
View all postsPrithvi Raj Tejavath is currently the Business Head - Investments at Jupiter Money, where he leverages his extensive experience in product marketing, business growth, and leadership. Prior to this, he held the role of Chief Product Marketing Officer and Chief Product Officer at Scripbox, a leading digital wealth management platform. His journey at Scripbox began after the acquisition of Upwardly, a company he co-founded, where he served as CPMO overseeing product and marketing. At Upwardly, Prithvi played a crucial role in making investment opportunities more accessible to a broader audience. Before Upwardly, Prithvi was Vice President of Category Management & Growth at Urban Ladder, where he managed the P&L for their furniture, décor, and mattress divisions, and successfully launched the Decor and Mattress business units. Earlier in his career, he founded BuynBrag.com, India's first social shopping website focused on home and lifestyle products. Under his leadership, BuynBrag was acquired by Urban Ladder in September 2014. With a background in online product management, growth strategy, and marketing, Prithvi has consistently demonstrated his ability to scale businesses and drive innovation across sectors. His entrepreneurial spirit and strategic acumen continue to shape his contributions to the financial and investment landscape.
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