Dept

If you are looking for moderate growth of capital with virtually no risk, investing in debt funds is best for you.

Debt mutual funds invest your money in fixed income investments like short/long term bonds, securitized products, floating rate corporate debts etc. This type of funds are virtually risk free and yields average returns around 8% - 12%. This makes debt funds a better investment option compared to fixed deposits because of higher rate of returns and freedom to withdraw your money whenever you want.

Interest rates and NAV of debt funds move in opposite directions. This means that falling interest rates are good for debt funds. When interest rates fall, the bond prices go up and it boosts the NAV of debt mutual funds.

LONG TERM FUNDS

Long term debt funds invest in Corporate bonds and Government of India bonds that have a long-term maturity period. Long term income funds usually benefit when the interest rates are moving downwards. However, they are highly vulnerable to the changes in interest rates and are suitable for investors who have a long term investment plans and likely to take high risks.

Interest rates and prices of the debt instruments have an inverse relationship. This means they move in opposite directions. For example, a falling interest rate is good for debt mutual funds. When interest rates fall, the bond prices go up and it will boost NAVs of the debt mutual fund schemes.  The risk of losing the capital and the interest on the investment is credit risk. Instruments with lowest credit rating will have the highest credit default risk and will certainly give higher yields 

SHORT TERM FUNDS

Short term funds mainly invest in Commercial Papers, Certificate of Deposits, Money Market Instruments, etc. The average maturity period of a short-term fund is usually between six months to 12 months. They may provide a higher level of return than ultra-short-term and liquid funds but will be exposed to higher risks.

Interest rates and prices of the debt instruments have an inverse relationship. This means they move in opposite directions. For example, a falling interest rate is good for debt mutual funds. When interest rates fall, the bond prices go up and it will boost NAVs of the debt mutual fund schemes.  The risk of losing the capital and the interest on the investment is credit risk. Instruments with lowest credit rating will have the highest credit default risk and will certainly give higher yields.

 

Mutual Fund v/sOthers

Fixed Deposit   VS   Mutual Funds

 

# Taxation details are as per existing tax laws. The nature of tax will depend based on the individuals tax

Taxes significantly affect income from FDs

While interest from Bank FDs is always taxed at your maximum rate, Debt funds attract almost nil tax after 3 years and lower tax between 1 and 3 years. Upto 1 year the tax impact for both is similar The illustration here -an investment of Rs 1 Lakh each ,we've assumed in a given year, all 3 investments deliver a return of 9% can help you understand the comparison better.

 

 

 

Provident Funds   VS   Mutual Funds

 

PPF is a long- term savings investment options established by the Govt. of India in 1968. It offers tax benefits on withdrawal as well as on contributions.
Mutual Funds-ELSS (Equity Linked Saving Scheme is similar to PPF in terms of tax implications(both enjoys the benefit of 80C). However, the average returns in ELSS in much higher (3 years returns-14- 16%) when compared with PPF.
Safe Investors can also invest in Debt / Liquid / Short Term Mutual Funds.Debt funds allow indexation benefits (tax is lowered taking inflation into consideration) if you hold them for a period of 3 years.