Jama

Debt Funds

Debt funds are mutual funds that invest in fixed income securities like bonds and treasury bills. Debt funds are preferred by investors who are not willing to invest in a highly volatile equity market. A debt fund provides a steady but low income relative to equity.


Benefits Of Debt Mutual Funds

The benefits of debt mutual funds are many:

1. Expertise: The fund manager is actively looking at the market and taking a call based on the money market situation. Debt mutual funds are mainly invest in debt and fixed income securities such as Treasury Bills, Gilt funds, money market instruments etc. Just like the equity markets, money markets are dynamic. It allows liquid fund managers to make money based on interest rate movements and the prevailing liquidity situation. Thus, your money is actively managed and is likely to earn a much higher return.

2. Diversification: Since the money cannot be invested in any one organization or group of organizations or industry, the benefit of diversification or the spreading of risks, reduces the risk.

3. Liquidity: Money can be withdrawn any day. No questions asked. No exit loads. Atleast, the Jama picks ensure that there are no exit loads. So, liquidity is taken care of. Some funds are even offering ATM cards for instant withdrawal of money.

4. Tax Efficient: existing tax laws are skewed in favour of mutual funds compared to the interest on Bank Fixed deposits. There is no real incentive to invest in Fixed Deposits. As we understood earlier, they are not risk free. The returns after adjusting for tax and inflation, are negative.

How is it different from investing in bonds directly?

Mutual funds allow diversification within the debt market. Whereas you’re risking your money on one particular company when you buy their bonds, a debt mutual fund is a pooled investment. For example, when IL&FS fiasco happened, their bond holders would have lost money and had sleepless nights, whereas mutual fund investors would have lost much less.


Who should invest in Debt Mutual Funds?

Almost everybody can invest in debt funds. If you have financial goals falling due within the next 5 years (retirement, children’s education, etc), it is preferable to move investments (or at least a large portion) into debt funds.


How long should I stay invested for?

Debt mutual funds are a good asset category for parking cash and cushioning your portfolio against shocks. You should stay invested for at least 3 years so that you enjoy indexation benefits on your gains.


How much should I invest in debt funds?

There cannot be a generalized asset allocation for one and all. A professional investment advisor such as a Registered Investment Advisor (RIA) will help you arrive at the right allocation. RIAs are registered with the Securities & Exchange Board of India (SEBI) and play a fiduciary role. This means that they are focused on giving you right interest for a fee. It is illegal for them to make any commission income on your debt fund investments.


How should one invest in Debt Funds?

You can invest in debt mutual funds by choosing any of the fund categories listed below. Then entire process is seamless and can be done in minutes.
You can take the advice of a SEBI Registered Investment Advisor to help you select the right fund. Out here at Jamā we have a list of funds carefully selected by SEBI RIAs that does this work for you. They also track the performance of the funds and ensure that these investments are 100% aligned to your life goals such as an emergency fund or consistent income to meet your expenses.



Start Investing

Benefits Of Debt Mutual Funds

The benefits of debt mutual funds are many:

1. Expertise: The fund manager is actively looking at the market and taking a call based on the money market situation. Debt mutual funds are mainly invest in debt and fixed income securities such as Treasury Bills, Gilt funds, money market instruments etc. Just like the equity markets, money markets are dynamic. It allows liquid fund managers to make money based on interest rate movements and the prevailing liquidity situation. Thus, your money is actively managed and is likely to earn a much higher return.

2. Diversification: Since the money cannot be invested in any one organization or group of organizations or industry, the benefit of diversification or the spreading of risks, reduces the risk.

3. Liquidity: Money can be withdrawn any day. No questions asked. No exit loads. Atleast, the Jama picks ensure that there are no exit loads. So, liquidity is taken care of. Some funds are even offering ATM cards for instant withdrawal of money.

4. Tax Efficient: existing tax laws are skewed in favour of mutual funds compared to the interest on Bank Fixed deposits. There is no real incentive to invest in Fixed Deposits. As we understood earlier, they are not risk free. The returns after adjusting for tax and inflation, are negative.

How is it different from investing in bonds directly?

Mutual funds allow diversification within the debt market. Whereas you’re risking your money on one particular company when you buy their bonds, a debt mutual fund is a pooled investment. For example, when IL&FS fiasco happened, their bond holders would have lost money and had sleepless nights, whereas mutual fund investors would have lost much less.


Who should invest in Debt Mutual Funds?

Almost everybody can invest in debt funds. If you have financial goals falling due within the next 5 years (retirement, children’s education, etc), it is preferable to move investments (or at least a large portion) into debt funds.


How long should I stay invested for?

Debt mutual funds are a good asset category for parking cash and cushioning your portfolio against shocks. You should stay invested for at least 3 years so that you enjoy indexation benefits on your gains.


How much should I invest in debt funds?

There cannot be a generalized asset allocation for one and all. A professional investment advisor such as a Registered Investment Advisor (RIA) will help you arrive at the right allocation. RIAs are registered with the Securities & Exchange Board of India (SEBI) and play a fiduciary role. This means that they are focused on giving you right interest for a fee. It is illegal for them to make any commission income on your debt fund investments.


How should one invest in Debt Funds?

You can invest in debt mutual funds by choosing any of the fund categories listed below. Then entire process is seamless and can be done in minutes.
You can take the advice of a SEBI Registered Investment Advisor to help you select the right fund. Out here at Jamā we have a list of funds carefully selected by SEBI RIAs that does this work for you. They also track the performance of the funds and ensure that these investments are 100% aligned to your life goals such as an emergency fund or consistent income to meet your expenses.



Start Investing