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By Maithreyi
Debt Funds
Funds that invest predominantly in fixed income bearing instruments such as corporate debentures, PSU bonds, gilts, treasury bills, certificates of deposit and commercial papers and mostly in Govt Securities ( G-Secs). These funds are the least risky and are generally preferred by risk-averse investors.
Ex: Treasury bills, with original maturities of less than one year, Government bonds. Holding cash in bank may not get much return ( only 4-6%),nor in investing in gold due to problems related to purity. Investing in Government securities has the following advantages: Offers return ( fixed ) which gives safety to investors Government securities can be sold easily in the secondary market to meet cash requirements.
Government securities are available in a wide range of maturities from 91 days to as long as 30 years. Government security prices are readily available due to a liquid and active secondary market and a transparent price dissemination mechanism. Government securities are issued through auctions conducted by the RBI.
Debt
Long term
1-3 months
Since risk is less and returns are moderate best debt fund to choose is Long term Debt fund.
Before choosing any Debt fund the investor has to take the following points in mind Time horizon Investment Objective Risk to be taken. To get returns which are satisfiable .
Managing Debt Funds is certainly not as glamorous as equity mutual funds, but still they perform an important job for investors in the following areas such as 1) Principal Protection - As a majority of the debt funds are rated for credit quality by an external rating agency 2) Low Risk - When compared to equity as most of the debt funds invest only in the highest credit rated debt paper.
3) Tax free or Tax Efficient returns - In the hand of the investors and lower tax outgo when compared to other fixed income instruments like FDs etc.
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