A mutual fund is a professionally managed company that collects the money of many investors and invests it in securities such as stocks, bonds and short-term debts, equity or bond funds, and money market funds.
Mutual funds are a good investment for investors who want to diversify their portfolio. Instead of focusing everything on one company or sector, a mutual fund invests in different securities to try to minimize portfolio risk
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Debt funds invest their investors’ money in interest-bearing securities such as bonds, corporate deposits, G-sec, money market instruments, etc. These bonds are like certificates that carry the obligation on the part of the bond issuer to pay regular interest (coupons) to bond investors. Therefore, debt funds regularly earn interest and revenues from those securities held in their portfolio. The interest earned by a debt fund from its bond portfolio can be distributed among investors or accrued to the fund, that is, added to the fund’s activities, leading to an increase in NAV. Thus, unlike equity funds that depend on the divided distribution of their stock portfolio, debt funds have regular interest income, from the underlying portfolio, incorporated into
their characteristics.
As an investor, you can opt for a dividend payment option if you want to receive regular income from your debt funds. While the option is called ‘Dividend Payout’, it distributes active interest and other capital gains earned from its portfolio at regular intervals. Even if a debt fund’s portfolio included interest-paying securities, making its dividend distribution more predictable and regular than that of an equity mutual fund, these dividends are not guaranteed. Dividends are paid only when the fund has a distributable surplus. He talks about the distributable surplus and that income will not always be regular
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