Debt Fund – Giving a Loan?
Buying a debt instrument is just like giving a loan to the issuing entity. Also, a debt fund invests in fixed interest generating securities like treasury bills, commercial paper, money market instruments, government securities, and corporate bonds. The fundamental reason for investing in debt funds is to earn capital appreciation and interest income. They are also known as fixed-income securities. All about debt funds in details is here:
The work of debt funds is done in different securities, totally based on their credit ratings. A security’s credit rating states whether the issuer will default in disbursing the returns they end up promising. Not to miss, the debt fund manager ensures that he invests in high-credit quality instruments. Here, a high credit rating means that the entity is on the higher nodes to pay interest on the debt security regularly; also, pay back the principal amount upon maturity.
A Bit Over Here:
Debt funds that invest in high-rated securities are less volatile as compared to low-rated securities. On addition, maturity also depends on the investment strategy of the fund manager & the interest rate regime in the overall economy. A fall in the interest rate encourages the fund manager to invest in long-term securities and vice-versa.
Figuring out the Types of Debt Funds
- Dynamic Bond Funds: As the name states, the fund manager keeps changing the portfolio according to the fluctuations of the interest rate.
- Income Funds: These funds take a call on the rate of interest & invest pre-dominantly in debt securities with extended maturities. More stable than the dynamic bond. Also, the maturity of income funds is somewhere around 5-6 years.
- Short-term & Ultra Short-term Debt Funds: These funds are ideal for conservative investors as they are not affected by interest rate movements. They range from 1-3 years.
- Liquid Funds: Almost risk-free wherein the maturity is not more than 91 days. It’s very rare liquid funds have ever seen any negative results. Also, these funds are good alternatives to savings bank accounts – providing the same liquidity with higher returns.
- Gilt Funds: These funds only invest in government securities – low credit risk & high rated securities. Gilt funds are an ideal pick for risk-averse fixed income investors.
- Fixed Maturity Plans: These are close-ended debt funds that invest in fixed-income securities like government securities and corporate bonds. However, they do not assure or guarantee high-returns.
- Credit Opportunities Funds: These are new debt funds and unlike other types of debt funds, these do not invest according to the maturities of debt instruments. Also, credit opportunities funds are quite risky funds.
How to Invest in Debt Funds with Gulaq?
- Sigh-in at gulaq.com
- Fill-in your details
- Enter the investment amount & maturity period
- Complete your KYC (It is FREE)
- Invest in the fund you are likely about OR get in touch with the team regarding the same
Time to start your investment journey.
Also, Check Best Debt Mutual Funds 2019
*Mutual fund investments are subject to market risks. Please read the scheme information and other related documents carefully before investing.