Debt fund banks are known to give 2 to 10% higher annual returns than FDs. Long-term debt funds have given 25% or more returns in 5 years.
A debt fund is a type of mutual fund that gives returns by lending your money to government securities and companies. The debt fund’s return and risk depends on the lending period and for which sector it is being borrowed. Debt funds invest in fixed income instruments such as treasury bills, corporate bonds, commercial papers, and government securities.
Lakshmi Iyer, CIO – Debt & Head Product of Kotak AMC, says that you get fixed interest in them, but when these funds are traded in the stock market, then you get returns according to the market.
Do bank FDs get better returns in debt funds?
Debt fund banks are known to give 2 to 10 percent higher annual returns than FDs. Long-term debt funds have given 25% or more returns in 5 years. According to Laxmi Iyer, bank FDs give you assured returns, they will tell you in advance how much interest will be received in the year ahead. However, debt funds also give you market-linked returns with fixed interest. There is nothing to worry about this, it is for those investors who do not want to get tied up in the bank FD lock-in or want to earn more returns in the short to medium time on the money kept in a savings bank account.
How to choose a debt fund?
Investments can be made in debt mutual funds from 10-day overnight funds to one-week liquid funds. And there are also short-duration funds of 1 -3 years.
Laxmi Iyer’s advice is to take care of two things that will help you in choosing the right debt fund – your approach to investment is long term or short term, secondly decide your investment goals and go for such funds Lend to good companies. The higher the credit rating of the company, the better.
In April, investment of 1 lakh crores came in debt funds, is this the right time to invest in debt funds?
According to Lakshmi Iyer, the interest rates that are being seen at the level are now looking stable. There is not much worry about inflation. The government has put liquidity in the system to bring the economy back on track and in such a situation, it may be the right time to invest in a short to medium term ie two to three year debt fund. However, investors should take advice from the financial advisor on this and decide based on their risk capacity.
