It's true that Debt Funds are less risky compared to Equity Funds but that doesn't mean Debt Funds guarantee that your money will never face any loss. Debt funds invest in debt and money market securities that are prone to different kind of risk factors as compared to equity funds that invest in stock market.
Overnight Funds
These overnight instruments are backed by collateral which comprises of Government Securities, and so these funds also have no credit risk. These are the safest debt funds but their yield is usually also the lowest. Overnight funds are suitable for parking your funds for a few days.
Liquidity: Debt funds feature high liquidity, with speedy redemption, usually within one or two working days. Unlike fixed deposits, there's no lock-in period, but some funds may impose minor exit costs for early withdrawal.
Yes, most debt funds allow withdrawals anytime without incurring an exit penalty. Additionally, you can set up a Systematic Withdrawal Plan (SWP) to automate monthly withdrawals from your funds.
Looking at the current economic landscape, you can see why now is a good time to invest in debt funds. Potentially, interest rates are stabilising, the risk-return balance is improving, and bond prices seem favourable.
However, the general rule is that debt collectors, even with your details, cannot simply remove funds from your account without specific authorization. Typically, they require something known as a 'bank levy' to access your account.
Approximately 18 funds offered double-digit returns during the same period. Aditya Birla SL Credit Risk Fund delivered a 12.13% return in the past year. HDFC Long Duration Debt Fund and SBI Long Duration Fund provided returns of 11.91% and 11.74%, respectively, over the last year.
This same kind of scenario was expected when Corona crisis hit the economy, but surprisingly debt funds gave negative returns. Why were debt funds giving negative returns? The price of Debt Mutual Fund is sum of interest accrual on the underlying bond and the mark to market price of the underlying bond.
Debt funds are also referred to as Fixed Income Funds or Bond Funds. A few major advantages of investing in debt funds are low cost structure, relatively stable returns, relatively high liquidity and reasonable safety.
No, debt funds are not tax-exempt. They are subject to taxation only at the time of sale or transfer of the capital asset.
Credit Ratings and High Yield Debt
Bonds with AAA rating are the most secure, with the lowest probability of default, whereas bonds with D rating are the least secure, with the highest probability of default.
Debt mutual funds returns in the coming years will be impacted due to lesser government borrowings as well as inclusion of Indian government securities in the global index. The government in the interim budget 2024 announced its intention to reduce its borrowings in the upcoming fiscal year, 2024-25.
When prices are low during market dips or corrections, it's a good time to invest a lot. But be careful during high-price times to avoid paying too much for assets. Economic future: Keep up with big economic signs and government decisions that can change how the market feels and how investments do.
Investment Process
This money is their capital. They use this capital to buy fixed-income securities like bonds and money market instruments tools. These securities pay interest over time. The fund manager collects this interest.
Some of the major risks in these instruments/funds are: 1) Interest risk- This is also known as price risk. Whenever there is a change is the interest rates the price of a debt instrument also changes.
Debt Mutual Funds cover a wide range of debt securities and each security is affected by the changes in interest rates. As a result, the best time to invest in Debt Funds is usually when interest rates are decreasing or expected to drop.
The chances of your mutual fund investment value going to zero are practically almost impossible as it would mean that all the assets in the fund's portfolio will have to lose their entire value. However, the returns from a fund can go to zero or even become negative.
Two fund categories, Overnight Funds and Liquid Funds fall in this category. These are the safest funds in the debt category with negligible interest or credit risk. In these funds, safety and liquidity take the highest priority with returns being an outcome of the first two factors.
Yes, you can withdraw money from most mutual funds anytime, unless they have a lock-in period.
Debt to net worth ratio of less than 100% is considered a good debt level. A higher percentage goes against common wisdom that suggests corporations should limit their debt below a certain amount, usually 30%.
Bank accounts solely for government benefits
Federal law ensures that creditors cannot touch certain federal benefits, such as Social Security funds and veterans' benefits. If you're receiving these benefits, they would be exempt from garnishment.
If you are struggling with debt and debt collectors, Farmer & Morris Law, PLLC can help. As soon as you use the 11-word phrase “please cease and desist all calls and contact with me immediately” to stop the harassment, call us for a free consultation about what you can do to resolve your debt problems for good.
Inflation Is Eating Away at Your Funds
According to the Bureau of Labor Statistics, the average rate of inflation from April 2023 to April 2024 was 3.4%. If you've been keeping your money in a savings account with a lower yield than the rate of inflation, you should switch over to a higher-yield account.