Contemplating Investing In Debt Funds? Here's All You Need To Know

In the current economic climate, short-to-medium duration debt funds with low credit and interest rate risk might be the way to go

COVID-19's unprecedented impact on our economy as well as personal finances has led to many contemplating how to future-proof their investments and savings, and how to effectively build wealth for retirement. Seasoned investors and financial advisors often recommend spreading one's investments across different kinds of assets such as equities, gold, and debt. This ensures an all-weather approach that secures one's portfolio against rising inflation or any drastic movement in the value of any asset. Debt funds are considered one of the less risky investments when compared to equities, and are often preferred by investors looking for moderate, but steady returns from their investments. What are debt funds To understand debt funds, we must first understand what bonds are. To put it simply, bonds are loans that are taken by institutions like the government, the banks, non-banking financial companies (NBFCs), corporations, financial institutions, etc. Investors can purchase these bonds with a pre-decided date of maturity and interest rate. Since the returns are pre-calculated, these are also called fixed-income securities. Debt funds, therefore, are those mutual funds that invest in bonds, like government securities, corporate bonds, treasury bills, etc. Returns and risks from debt funds