Debt mutual funds are ideal investments for conservative investors and are suitable for both the short-term and medium-term investment horizons. Short-term starts from 3 months to 1 year, while Medium term is from 3 years and more.

Debt Funds normally invest Debt papers of various issuers and of various tenure like Government Securities, Corporate Bonds, Debentures and Bank Certificate of Deposit etc.

For a short-term investor, debt funds like liquid funds may be an ideal investment as compared to keeping your money in a saving bank account. Liquid funds offer higher returns currently ,in the range of 6-7% along with similar kind of liquidity for meeting emergency requirements.

For a medium-term investor, debt funds like accrual funds can be ideal to ride the interest rate volatility. As compared to 3-5 year bank FD, these debt funds offer higher returns. An investor can also generate a regular Monthly/ Quarterly Income by investing in these Debt Funds.

Benefits of investing in Debt mutual funds:

• Investing a part of your portfolio in debt funds secures your portfolio from market volatility (for that portion of course)
• Provides stability to the portfolio
• Flexibility to withdraw or redeem your capital anytime.
• You gain better post tax returns because of the indexation benefit you avail (in case of long term capital gains)

Taxability of debt funds

• Short term capital gains (holding period less than 36 months) are taxed per investor’s tax bracket.
• Long term capital gains (holding period more than 36 months) avail the indexation benefit and thereafter taxed at 20% on indexed gain.