A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment company in the UK.
What are debt funds?
A debt fund
is a mutual fund scheme that invests in fixed income instruments, such as corporate and government bonds, corporate debt securities and money market instruments, etc. that offer capital appreciation. Debt funds are also referred to as fixed income funds or bond funds.
Some of the
main advantages of investing in debt funds are the low-cost structure, relatively stable returns, relatively high liquidity and reasonable security.
Debt funds are ideal for investors who aim for a regular income, but are risk averse. Debt funds are less volatile and, therefore, are less risky than equity funds. If you’ve saved on traditional fixed-income products like bank deposits and are looking for consistent returns with low volatility, debt mutual funds may be a better option, as they help you achieve your financial goals more tax-efficiently and thus earn better returns.
In terms of operation, debt funds are not entirely different from other mutual fund schemes. However, in terms of capital security, they score higher than mutual funds.
