debtmutual-fund

What are the best debt funds to invest for 6 months?

I want to invest for just 6 months. What are the best debt funds to invest in?

Asked
Ankit

Debt funds are mutual funds that invest in fixed income securities like bonds, treasury bills and deposits of various kinds

The interest earned from these investments are passed on by the debt fund to the investors. Debt funds are low risk funds and is preferred by investors not willing to take much risk by investing in a highly volatile equity market. These funds provide steady flow of income but comparatively low income as compared to equity funds. Investment in this fund is ideal for investors who are risk averse and want regular flow of income.

Advantages of debt funds over Fixed Deposits are:

·     Debt funds provide better returns as compared to fixed deposits

·     Debt Funds also provide better liquidity and can be redeemed as per investor’s choice whereas in case of fixed deposits a fixed tenure is there.

·     Debt Funds enjoy better tax implications as compared to fixed deposits.

Therefore, debt funds can be a great medium for investors to achieve their financial goals if they do not want to bear the equity risk.

An investor intending to invest only for 6 months can invest in either Liquid mutual funds or Ultra short term debt funds. Liquid mutual funds usually invest in government bonds and certificate of deposits of 3 to 6 months. In these types of funds, investor can easily enter and exit at any point of time i.e. he/she can withdraw money from the fund on any business day. Redemption process takes a day and may take 2 days sometimes.

 Ultra short term funds are most appropriate debt funds for an investor in short term period. These funds invest in securities that mature within a week to 1.5 years. They are also called as Liquid plus funds. In comparison to FDs and other small saving schemes, investing in debt mutual funds can prove more rewarding and tax efficient. However, they may levy an exit load for investors who redeem money before the maturity period. Expected returns from these funds are around 7-10%.

Few debt funds are:

Arpit Chandak

Debt funds are the types of mutual funds which invest capital of investors in bonds and deposits of various kinds and pass on the interest earned in the form of returns to the investors. In simple terms, investors lend money and earn interest (returns) on the money they have lent.

Advantages of debt funds are low cost structure, stable returns, high returns and they score high on safety. They are less volatile and hence less risky than equity funds. Investment in debt funds is ideal for investors who want regular income and risk averse. Therefore, debt funds can be a great medium for investors to achieve their financial goals if they do not want to bear the equity risk.

If you want to invest only for 6 months, you can invest in either Liquid mutual funds or Ultra short term debt funds. Liquid mutual funds usually invest in government bonds and certificate of deposits of less duration (typically 3 months or 6 months). In these types of funds, investor can easily enter and exit at any point of time i.e. you can withdraw money from the fund on any business day. However, sometimes the redemption process takes around 2 business days.

 Ultra short term funds are most appropriate debt funds for an investor in short term period. These funds invest in securities that mature within a week to 1.5 years.  They are also called as Liquid plus funds. In comparison to FDs and other small saving schemes, investing in debt mutual funds can prove more rewarding and tax efficient. However, they may levy an exit load for investors who redeem money before the maturity period. Expected returns from these funds are around 7-10%.

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