Aug 25, 2017 4 min read

How Are Debt Mutual Funds Important for the Fresh Investors?

Debt mutual funds help the fresh investors to create wealth. Know how?
Nowadays mutual fund investments are chasing records in terms of increase in the number of investors associated with them. It is because of the rapid awareness of saving money today for tomorrow’s financial needs. However, in this rush of creating wealth through mutual funds, the newbies are getting puzzled to make a right choice among the various plans available for mutual fund investments. Here. we have made it simple for you to understand that what should be the right choice for you if you are a fresh investor.

Debt mutual funds are considered among the best choices for the newbies because they provide several benefits which help the investors to stay invested. Let’s clear it out that how debt funds help the fresh investors to initiate their investment journey with cheers. But before that, we need to categorise these investors because the importance of debt funds varies on the basis of the type of investor.

Here’s the categorisation of the fresh investors and the importance of debt funds for them:

  1. Late Investors : Those who start their investment journey at an elder age fall under this category. They are usually the retired persons or those who are nearing the age of retirement. At this stage, they do not have strong intention to face the risky portfolio, and seek a regular income option which can help them meet their normal expenses. They are less likely to invest in a risky portfolio because they seek safety and short-term profits which can be availed by investing in the debt funds. Furthermore, if they wish to gain long-term profits too then they can choose to diversify their portfolio, but we suggest to diversify the portfolio in a manner that majority of the capital should be invested in the debt category.
  2. Young Investors : Generally, they are full of energy and dreams which are yet to be achieved. Being a fresher in the investment world, debt mutual funds should be their first priority, if they do not want exposure to a risky portfolio. They can take good experience by investing in debt mutual funds for a certain period of time, and can further create strategies for investment plans. Until then, debt funds will keep providing them good returns for meeting the current expenses.

If you are a fresh investor, then you can also start your investment journey with debt mutual funds to take various experience. These funds are less affected by the market volatility and keep providing a regular income to the investors. Furthermore, they manage to have consistency in the returns because they earn through various securities of government and money market instruments.

Usually, it happens with many that they want to start investing, but due to their fear, they do not step ahead. We suggest one must not waste time and start their investment journey with debt funds because they have several features which make them the best income-generating funds.

The Best Benefits of Debt Mutual Funds:

  • Regular Income : Mostly, debt funds are opted for their nature of providing regular income to the investors. They invest in various money and cash instruments, treasury bills, government securities, etc., which help them to fetch a continuous return for the investors.
  • Liquidity : Some of the debt funds, viz., liquid and ultra-short debt mutual funds have liquid nature and come with a zero exit load. So, one can redeem the capital from such investments whenever required. Unlike the bank fixed deposits, the fund house does not charge any penalty for early withdrawals in such cases. So, for the newbies, it is more beneficial as they have the option of anytime withdrawal of their investment capital without any exit loads.
  • Tax Efficiency : One can also reap the tax benefits in long-term debt funds as the tax calculated on the capital gains on these funds is based on indexation due to which the capital gain is reduced, and one gets the benefit of paying less taxes.
  • Short-Term Gains : Debt funds are also known for their nature of generating short-term capital gain. The short-term debt funds have the ability to provide good returns even in the short period of time. Moreover, some have the potential to double or triple the capital value in just a few years.

“Don’t try to climb two stairs at once if you are not an expert, climb one by one and you will be on the top one day.” Similarly, the investors who are new and are less informed can start their investments in debt mutual funds to gain regular income, and by the time they can diversify their portfolio. If you find these funds suitable for your portfolio, you must begin investing in them at MySIPonline right away.