How to choose Debt Mutual Funds. Debt Mutual Funds are a set of schemes that generate income by investing primarily in fixed income instruments like govt and corporate bonds and other money market securities. These are not linked to the equity market and are considered less risky compared to Equity Mutual Funds.
Syncing debt mutual funds with your goals
(Based on the concept of Laddering where you match the investment horizon and the maturity period of the product so that there is no market risk on maturity):
- For 10 Years investment horizon – G-Sec Funds
- 3 years investment horizon – Short Duration Fund, Corporate bond Funds, Banking & PSU Funds, Credit-Risk Funds (as per risk appetite)
- 1 Year – Money Market Fund
- 6 to 12 months – Low Duration Funds
- 3 to 6 months – Ultra-short Duration Funds
- Up to 1 month – Liquid Funds
Choose accordingly.
Note: Starting 1st April 2023, the debt funds no longer receive indexation benefit and deemed to be short-term capital gain. Therefore, the gains from debt funds will now be added to your taxable income and taxed at the slab rate.
Disclaimer: The information provided in this blog is for general informational purposes only and does not constitute professional advice. While full efforts have been made to ensure the accuracy of data and numbers, no responsibility is taken for any errors or omissions. Tax implications on insurance, investments and returns from related products may change due to updates in tax laws. Always consult with your financial advisor or insurance expert before making any investment or insurance decisions. The author is not responsible for any financial losses or damages incurred as a result of relying on the information in this blog.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully. The NAVs of the schemes may go up or down depending upon the factors and forces affecting the securities market including the fluctuations in the interest rates. The past performance of the mutual funds is not necessarily indicative of future performance of the schemes. Mutual Fund is not guaranteeing or assuring any dividend under any of the schemes and the same is subject to the availability and adequacy of distributable surplus. Investors are requested to review the prospectus carefully and obtain expert professional advice with regard to specific legal, tax, and financial implications of the investment/participation in the scheme.
