Saturday, January 16, 2021
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Debt Funds

Debt fund is a mutual fund plan in which the investment is built in fixed income securities like Government bonds, treasury mills, commercial papers and many other money market instruments. This is also known as Fixed Income Funds or Bond Funds.

These funds are referred to as Fixed Income Funds because of the fact that the interest rate and maturity period of the fund is decided by the issuers, even before issuing to the investors.

These funds are considered to be safe and at low-risk in comparison with equity funds.

TYPES OF DEBT FUNDS

  • Money Market Funds – Investment is made in money market instruments with a maturity of 1 year.
  • Corporate Bond Funds – Investment of 80%(min) of total assets in corporate bonds with highest ratings.
  • Gilt Funds – Investment of 80%(min) of its corpus in Government securities.
  • Floater Funds – Investment of 65%(min) of corpus in floating rate instruments.
  • Low Duration Funds – Investment is made in money market instruments and debt securities where the duration is between 6-12 months.
  • Short Duration Funds – Investment is made in money market instruments and debt securities where the duration is between 1-3 years.
  • Ultra-Short Duration Funds – Investment is made in money market instruments and debt securities where the duration is between 3-6 months.
  • Medium Duration Funds – Investment is made in money market instruments and debt securities where the duration is between 3-4 years.
  • Medium to Long Duration Funds – Investment is made in money market instruments and debt securities where the duration is between 4-7 years.
  • Long Duration Funds – Investment is made in money market instruments and debt securities where the duration is more than 7 years.
  • Dynamic Bond Funds – Investment is made in debt instruments with contrasting maturity periods.
  • Liquid Funds – Investment is made in money market instruments having maturity less than 91 days.
  • Overnight Funds – Investment is made in debt securities with a maturity of 1 day.
  • Credit Risk Funds – Investment of 65%(min) of total assets in corporate bonds with highest ratings.

BEST 5 DEBT FUNDS IN INDIA

  1. DSP Government Securities Fund
  2. HDFC Corporate Bond Growth
  3. Kotak Dynamic Bond Fund
  4. Edelweiss Government Securities Fund
  5. Axis Short Term Fun

MAIN ADVANTAGES OF DEBT FUNDS

  • In general, debt funds are immensely liquid. The capitalists can pull out the amount whenever they want.
  • There are no penalties related to the premature withdrawal of the sum.
  • Limited withdrawals without completely splitting the fund is also allowed.
  • Debt funds are extremely feasible to handle. You can transfer your capital consistently to a distinct equity fund from the same fund house.
  • These funds are tax-efficient than the identical investment securities.
  • TDS(Tax Deducted at Source) is not applied in debt funds.

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