4 Reasons That Make Debt Mutual Funds Ideal for Investors

Summary Increasing number of investors in India are now investing their money in mutual funds like Debt Mutual Funds due to the advantages they offer. But what are these benefits? Let us find out.

While FDs are still very popular in India due to the capital security, they offer, increasing number of people are now shifting towards mutual funds like debt funds. These funds are very popular among low-risk investors due to the higher tax-adjusted returns they can generate as compared to fixed deposits while requiring the investor to carry minimal risk.

But apart from higher returns, what are the other benefits of parking your funds in debt funds? Let us have a look.

  1. Highly Flexible Investment Tenure

Unlike FDs, Debt Mutual Funds do not require you to keep your money invested for a fixed amount of time. You can invest and withdraw your money anytime. Moreover, there are now many different types of debt funds, like liquid funds, ultra short-term bond funds, short-term funds, medium-term funds and long-term funds to suit the needs of different investors.

  1. Investment Continues to Grow

Fixed maturity plans and FDs give you a lump sum amount when the investment term ends. Encashing the money and reinvesting the same typically requires a few weeks and even months due to our hectic work schedules. This can affect your overall returns. On the other hand, your investment in debt funds continues to grow until the time you redeem the funds.

  1. Greater Flexibility

With debt mutual funds, you can start investing with as little as Rs. 1,000 every month through SIP (Systematic Investment Plan). You can also invest a higher amount whenever you have any additional funds. Similarly, now most of the funds offer SWP (Systematic Withdrawal Plan) feature with the help of which a fixed amount will be withdrawn from your investment in the fund each month. Overall, the greater flexibility of debt funds makes it a perfect investment option even for people who are new to investing.

  1. More Tax-efficient

Another major advantage of investing in debt funds is their tax efficiency. For instance, if you invest Rs. 25 lakhs in a fixed deposit at 7% for a year, you will get Rs. 14,585.3 every month. However, if you fall under the highest tax bracket of 30%, you’ll have to pay Rs. 4,375 as a tax on the interest you earn. On the other hand, if you invest the same amount in debt fund and opt for SWP of Rs. 14,585, you’ll only be required to pay capital gains tax which would be much lower than the tax you pay on the interest earned on the fixed deposit.

As you can see, several reasons make investing in debt funds a great option for any investor.  But at the same time, it is also essential to know the risks associated with mutual fund investments to make sure that you make the best of your hard earned money.