These Mutual Funds invest in various debt / fixed income securities like Central and State government securities, money market securities, commercial papers corporate bonds and corporate debentures.
Ocean Finvest Smart Tip 1: Debt Mutual funds are best suited for investors who are risk averse and are looking for more stable and regular returns for their investments. These investors can benefit immensely from the Indexation benefit provided by the government on taxation for Long Term capital gains tax on these funds. Long term Capital Gains tax on Debt funds is 20% with indexation benefits. This benefit can be availed by staying invested in these funds for more than 3 years. These funds are, therefore, a much better investment option than Fixed/Recurring Deposits any day. For example while post tax returns of a 9% yielding FD would have been 6%, post tax returns from a same return generating Debt Mutual Fund would have been 8.8%. A whopping 50% more return than FD. Still investing your money in FDs year after year????? Check out the 3 or 5 Years Annualized post tax returns of the Debt funds on our website to validate the same for yourself.
Ocean Finvest Smart Tip 2: Debt Mutual funds can also be a great investment option for investors who, although, have risk taking ability and willingness for Equity Mutual funds but think that the current valuations in the markets are very high and want to invest in equity markets only after a correction. These investors can park their money in Debt Mutual Funds for the interim. This would be still a better option than parking money in Fixed deposits as FDs levy a penalty of 1-2 percent for premature withdrawals. However, debt mutual funds are very liquid and many debt funds do not impose any penalty on withdrawal. So the investor can get much better returns than FD from his Mutual Fund investments.
Ocean Finvest Smart Tip 3: Some Debt mutual funds with high and medium term to maturity can give fabulous returns to the customers in a falling interest rate environment. This is because the bond prices move up when interest rates go down and vice versa.