How debt funds have evolved as an alternative to conservative schemes

In recent years, people who are a part of the job market have learned that merely investing money in conservative investment schemes like FDs and PPF might not be enough. While being a safer option, these schemes do not offer investors a chance to put their money in different sectors. Apart from restrictions on mobility, the opportunity to earn extra income through these schemes is negligible. That is where investing money in the market comes in. As part of a smart investment option, people invest a portion of their income in conservative schemes and another part in the market. In the market, several investment options such as mutual funds are available. One of the types of mutual funds is debt funds. This subcategory is known for investing in assets such as government securities, commercial papers, treasury bills, corporate bonds, and other types of money market instruments. So, if you are looking for reasons to keep aside a part of your income on a debt fund, listed below are four:

1. They are professionally managed:
One of the first reasons you should consider opting for debt mutual funds is that you can avail the help of professionals. Imagine that you have already put money into a conservative investment avenue to make some extra revenue. So, once you have opted for a conservative option you would be the only one who is responsible for its upkeep.

2. Debt funds invest in fixed-income securities:
Investing money into a debt mutual funds is a prudent choice if you aim to increase the balance of your portfolio over time. As stated earlier, this kind of mutual fund invests in fixed-income securities. The instruments this kind of fund invests in, come with an already fixed maturity date and interest rate. Apart from that, the fluctuations in the market may not have an impact on the returns on debt funds. Therefore, they are considered a reliable investment option. Moreover, the fund manager managing your portfolio will ensure that your money remains invested in different places rather than putting all eggs into one basket.

3. It offers diversification options:
Another significant feature of this type of investment option is that it offers you a chance for diversification. That means you have the chance to move your money across different sectors instead of investing all of your money in one place. For example, you opt for a conservative scheme. Even though it is safe you will still be depositing your money just in one place. But, if you opt for a debt fund, you would get a chance to allocate your money to different sectors. Doing so is possible with the help of a systematic transfer plan or an STP as it is also referred to. With the help of a systematic transfer plan, you have the option to either invest a lump sum amount in debt funds or systematically transfer a small portion into equity at regular intervals. By doing that, you may be able to spread out the risk of equities rather than investing the entire amount at one point. Flexibility options are one of the major reasons why you should consider debt funds as a viable option for a smart investment plan.

4. If it is high liquidity you are seeking, debt funds might be a viable option:
If it is an investment plan offering high liquidity that you seek, debt mutual funds might be one of the ideal investment options for you. While they are a preferred option amongst Indians, conservative schemes usually come with a specific maturity period. Let us say that you need cash urgently and are looking to liquidate your investments before the maturity period. When you do that, you will end up paying a penalty. Debt funds, on the other hand, don’t come with any specific lock-in period, a factor that differentiates them from conservative investment options. If you have opted to invest in debt funds and want to liquidate them before the maturity period, you can do so. But before liquidating please make sure to check if the debt fund has an exit load. An exit load is a charge which is deducted on debt funds for early withdrawals.

If you are looking for a mutual fund that may generate regular revenue, you can consider investing in debt mutual funds.

Statutory Details: Axis Mutual Fund has been established as a Trust under the Indian Trusts Act, 1882, sponsored by Axis Bank Ltd. (liability restricted to Rs. 1 Lakh). Trustee: Axis Mutual Fund Trustee Ltd. Investment Manager: Axis Asset Management Co. Ltd. (the AMC). Risk Factors: Axis Bank Limited is not liable or responsible for any loss or shortfall resulting from the operation of the scheme. No representation or warranty is made as to the accuracy, completeness or fairness of the information and opinions contained herein. The AMC reserves the right to make modifications and alterations to this statement as may be required from time to time.

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