When it comes to investing in mutual funds, most business owners assume equity is the only way to go. However, there are several other options like debt funds in which businesses can invest and earn steady and stable returns with very low risk.
In this blog, we will discuss what makes debt funds the best choice for business money investment and how debt funds help business owners have a steady and stable income in detail.
What Are Debt Funds?
Debt funds are funds that invest in different kinds of securities like corporate bonds, government securities, securitized products, and money market instruments. All these instruments have pre-decided returns and maturity dates, hence they are called fixed-income securities. The returns of debt funds are usually not affected by fluctuations in the market, hence they are a suitable choice for investors who are seeking stable and steady income like corporates.
How do Debt Funds work?
When you invest in debt securities, the fund manager parks that cash in a wide range of debt assets, such as corporate bonds, government securities, securitized products, and money market instruments.
This implies that when you invest your money in debt funds, you are lending money to the borrowers through fund managers. Your fund manager typically ensures to invest your money in instruments with high credit ratings such as government bonds etc. A higher credit rating means that the entity is more likely to pay interest on debt securities regularly and pay back the principal upon maturity.
Learn in detail about debt mutual funds with our blog – What are debt mutual funds and how do they work?
When you google, you will find a wide range of debt funds such as liquid funds, overnight funds, short-term funds, and ultra-short-term funds. In the below image, we have summarized the types of debt funds and their characteristics for you –
Types of Debt Funds
How To Find A Suitable Debt Fund Based On Risk & Returns?
The below graph shows the risks and returns associated with different types of debt funds.
How do debt mutual funds help business owners have a stable and steady income?
- Debt funds provide a stable and steady stream of income-
Debt funds are known for offering stable and steady returns as they are less dependent on market sentiments. Debt funds mostly invest the corpus in debt instruments like corporate bonds, government securities, securitized products, and money market instruments that do not fluctuate as easily as stocks. Hence, debt funds are less prone to market returns and do not fall as rapidly as equity funds.
- Debt funds offer high liquidity-
Along with the ability to generate stable and steady income, business owners need investments that can be liquidated easily during financial emergencies. When you invest in equity funds, you may pay an exit load to redeem money within a certain period from the date of investment, however, this is not usually the case with debt funds. Debt mutual funds mostly allow you to redeem your investment at any given time without charging you an exit load (historically). Additionally, most of the debt funds investments take just a single working day to redeem to back the account, whereas, in equity funds, this may take up to more than 2 working days.
- Debt funds help you save on taxes-
Debt funds are more tax-efficient than traditional investment options like fixed deposits (FDs). When you invest in FD, you pay tax on interest income every year. However, when you invest in debt funds, you pay tax only in the year you redeem your investment. You pay Short-Term Capital Gains (STCG) tax if you remain invested in debt funds for less than 3 years, while Long-Term Capital Gains (LTCG) are applicable for investments beyond three years.
- Debt funds are safer investment options and offer portfolio stability-
Business owners likely have a conservative approach when it comes to investing their business’ cash as they cannot afford to lose their hard-earned money. Debt mutual funds are the ideal choice for corporate investors with lower-risk tolerance as these mutual funds are characterized by lower volatility and appreciable credit quality. Hence, they also bring stability to the overall portfolio.
How can you invest in debt funds?
Here is your step-by-step guide to investing in debt funds with Shootih, the best mutual fund investment platform for corporates –
Step 1 – Create an account with Shootih.
Step 2 – If your KYC is not done, get it done with us for free.
Step 3 – Complete the registration process to get fully onboarded
Step 4- Once KYC and registration are completed, you can start your investment journey. To begin investing in debt funds, choose the duration you want to invest for.
Step 5 – For instance, you can invest for 7 days to 1 month.
Find the list of the best available mutual fund schemes for your preferred duration.
Step 6 – View fund details, enter the amount that you want to invest, and simply click invest.
You are all set to generate returns from your idle cash and grow your business profits.
To see how Shootih works, book a free demo call with us.