Consider debt Schemes to achieve your Short Term Goals

As written on: 2^nd Feb 2021

Finding the right investment scheme to target your financial goals can be difficult. There are so many investment products out there that making an investment decision confusing, especially if you are a new investor. This is why financial planning is essential for anyone who wishes to improve their existing financial condition. The term financial planning may sound complex, but it is just the art of managing your money in a smarter and wiser way. We all have certain financial goals in our mind which we aim to achieve in the near future. If you invest keeping these goals in mind, chances of you backing out before you achieve your investment objective are thin. Because when you invest with a purpose, you also get emotionally attached to it and will want to make sure that you remain committed to your investments till you achieve the desired corpus.

Investing has now become much easier in the digital age. Earlier, individuals depended on agents to enlighten them with new financial schemes. Also, most individuals preferred investing in traditional avenues simply because they offered fixed interest rates. However, in the current scenario, the interest rates offered by these conservative avenues are on the lower side. Also, many come with a lengthy lock-in period, which means investors cannot liquidate these investments in case of an exigency.

However, mutual funds give investors the option of switching from conservative investment avenues. Mutual funds invest in a diversified portfolio of securities and are aimed at income generation. These are professionally managed funds that are known to offer capital appreciation over the long term. If you do not want to risk your finances only with equity mutual funds that carry a high risk/rewards ratio, you can diversify your investment portfolio with debt mutual funds.

Debt schemes are schemes that invest in fixed income securities and debt instruments. A debt fund may invest across various instruments such as commercial papers, certificate of deposits, G-sec, derivatives, company fixed deposits, and corporate bonds.

Consider debt schemes for targeting your short-term goals

If you are someone who is new to mutual fund investing and has a low risk appetite, you can consider investing in a debt mutual fund scheme. Many debt schemes are also ideal for targeting one’s short-term financial goals:

Debt schemes have the option of SIP and lump sum investment

You can either make a one-time lump sum investment towards your debt mutual funds or you can consider the option of starting a monthly SIP. A one-time lump sum investment is generally made by the investor right at the beginning of his/her investment cycle. Investors are allotted units in quantum with the investment amount and depending on the fund’s existing net asset value (NAV). On the other hand, if you wish to inculcate the discipline of savings, you can consider starting a SIP in debt mutual funds. Systematic Investment Plan or SIP is an easy and convenient way to invest in mutual funds. Investors can also use SIP calculator, a free online tool, to help them get a rough estimate on the capital appreciation they might earn at the end of their investment journey based on assumptions such as the rate of return.

Debt schemes are available as direct and regular plans

A direct debt fund scheme is easily available and can be directly purchased from the fund house or AMC. In a direct plan, there is no involvement of an intermediary like a mutual fund distributor. The transaction occurs between the investor and the AMC. This is primarily why the expense ratio of investing in a direct plan is generally on the lower end. On the other hand, a regular debt fund plan can be brought through a mutual fund distributor who may be a broker or independent financial advisor. These aggregators charge a commission to the AMC for selling their funds. In turn, the AMC recovers these charges by levying a higher expense ratio on regular plans. Investors must decide whether they want to go with a regular plan or a direct plan before investing.

Debt schemes offer multiple payout options

Investors can decide whether they want to opt for the growth plan or dividend plan depending on their income needs. A growth plan is where the capital appreciation earned by the scheme is reinvested back in the fund. This type of plan is ideal for anyone who aims to earn capital appreciation over the long term. A dividend plan may work in favor of those individuals who seek regular income. However, the fund manager may only distribute dividends if the scheme manages to generate profits.

All retail investors are expected to consult their financial advisor before investing in debt mutual funds.

Mutual Fund Investments are subject to market risks, read all scheme related documents carefully.