What are Debt Mutual Funds?

Traditionally, people with a low risk appetite go for fixed deposits (FDs) as they are a safe source of investment. FDs are very popular, especially with senior citizens who are risk averse. However, with many mutual funds providing an option to invest in debt funds which generate fixed income and assure better returns, investors nowadays have more choices to consider.

Debt funds are mutual funds that invest in fixed income securities like bonds and treasury bills. Gilt fund, monthly income plans (MIPs), short term plans (STPs), liquid funds, and fixed maturity plans (FMPs) are some of the investment options in debt funds.

Even though debt funds carry negligible risk and have some charges associated with them, they have emerged as a very good investment product for risk-averse investors. They are very tax efficient and hence give much higher post-tax returns. Hence, people, especially in higher tax brackets, should definitely consider debt fund as an alternate source of investment to fixed deposit.

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