Jan 01, 1970 3 min read

Why is Debt Fund a Must Have for a Productive Portfolio?

Debt mutual funds offer a great advantage which is not known to everyone. Read this blog to know why you must have debt funds in your investment portfolio to earn greater benefits.
Do you know that debt fund— a category of mutual fund, provides a wide range of products to suit your divergent investment horizon? In fact, this is the single biggest benefit that it offers to the investors when compared to equity fund, as the latter is meant for long-term investments only. So let us know what makes Debt Funds a must-have programme for designing a worthwhile portfolio.

The returns offered by debt mutual funds may not be top-notch like equities, but they are an optimal choice in terms of risk appetite. There are various benefits attached with the same which provide high worth to the investment portfolio and increase the earning capacity of individuals. Here are some of the factors over which they are recommended to be added to the portfolio:

High Degree of Liquidity: A debt fund is very liquid in nature; one can withdraw the invested capital anytime as per the requirement which gets credited to the account the very next day. It does not levy any penalty or extra fees for early redemption and provides the option of making partial withdrawals instead of breaking the entire investment.

Tax Efficiency: In the long run, best debt mutual funds are highly tax efficient. The returns generated from a one-year investment in debt funds treated as long-term capital gain and is taxable at a very lower rate, i.e., either 10% or 20% after indexation. Longer the period of investment, higher shall be the indexation benefit. Furthermore, there is no TDS in debt fund’s income. Thus you receive the entire earnings without any tax deduction. In addition to this, the taxes are deferred indefinitely until the investor redeems the funds.

Probability to Earn Extreme Returns: The tax returns from debt mutual funds are higher in comparison with the other debt alternatives like Bonds and Fixed Deposits. In the case when there are interest rate fluctuations the debt funds yield much higher returns. Generally, debt funds returns are associated with the instruments which are directly related to the market rate instruments and hence the returns on these investments are more prone to the fluctuations. Furthermore, in the case of a reduction in the market rate, the value of securities boost up leading to capital gain benefits.

Greater Flexibility: Debt funds are extremely flexible and thus provide greater feasibility. One can invest a small amount of money at a regular interval say every month by way of SIP. Moreover, one can withdraw a sum from one’s investment as and when required to accomplish the instant cash needs. Accordingly, it is best suited to those who want to earn recurrent income to gain financial stability. One more key benefit that it provides is that one can easily switch on to an equity plan or any other fund as per the choice without bearing any extra cost or multiple efforts.

Guaranteed Growth Every day: In the case of an investment in the debt funds, the investment never stops growing until one redeems it. The everyday market interest rate changes also provide a daily up and down in the income generation with which the average returns are always high yielding.

While debt mutual funds offer multiple benefits, a fewer section of the investors put their money in them. The advantages mentioned above are the reasons due to which debt fund needs to be a part of every portfolio to give it security. The returns on its investments are risk adjusted and thus provide assured financial growth to everyone.

If you want to give substantial productivity to your portfolio in order to earn remarkable returns, you too must opt for the debt funds for investing your hard-earned money. You can take up our advice anytime using the 24/7 MySIPonline services. We would assist you in taking a strong decision for greater benefits.

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