- Date : 02/09/2022
- Read: 3 mins
Debt funds become attractive as interest rates rise!
If you want to become financially independent, planning your finances is very important. If you plan your finances well, you can retire comfortably even if you do not earn too much. If you desire financial security, you should look at investment options. Equities have been performing very well over the last two years, but this year has not been very good for the equity markets. Although the nifty returns are positive now, the overall volatility in the stock markets has made investors jittery about the future.
The rising interest rates have put pressure on the equity markets. But the debt funds look attractive because of the rising interest rates now. Whereas the equity funds invest in equity or equity-related products, the debt funds invest in debt and debt-related products. The investment products of debt funds include government treasuries, corporate bonds, treasury bills, certificates of deposits, etc. If you have to invest money for the short term, like saving for a foreign trip, renovating your home, etc., debt funds are a great choice to earn some returns. The benefits of debt funds are detailed below.
Related: Best debt funds to invest in India
Benefits of debt funds
The benefits of debt funds are as follows:-
- Stability- Your returns are stable, and you need not worry about market volatility.
- Liquidity- If you want to withdraw your funds, you can withdraw your funds within 24 hours at any bank account.
- Better returns- Higher returns than saving bank accounts and FDs.
- Ease of taxation- As you invest in a single fund, you will be taxed only on the returns of that fund as a whole without exposing you to complex taxation for each corporate deposit, fixed deposit, etc.
Related: How can debt funds beat inflation and interest rate risks?
Why rising interest rates is good for debt funds?
As the interest rates are rising, the returns on corporate deposits, government treasuries, etc., is rising as well. This increase in interest rates has made the debt funds attractive. Also, generally, the equity markets fall with an increase in interest rates making the debt funds even more attractive on a relative basis. If you have surplus capital that might be needed after 6 months to 2 years, debt funds are a good option to invest. If you have a longer-term horizon, you can stick with equity funds and benefit from the compounding offered by a growing economy like India.
Related: How debt and equity based mutual funds differ in risk
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Disclaimer: This article is intended for general information purposes only and should not be construed as investment or legal advice. You should separately obtain independent advice when making decisions in these areas.
