Are Debt Funds Better Than Bank Deposits?
Relatively few investors are aware of the existence of debt funds. When investors think about mutual funds, they generally assume that these funds make investments in the equity market. This is true most of the times. However, this is not true always. Of late, many specialized debt funds have come into existence.
In this article, we will have a look at some of the features of these debt funds and how they compare to the market at large.
Need For Debt Funds
Risk-averse investors park their funds in bank deposits. This is because bank deposits are safe and provide a guaranteed rate of return. However, bank deposits are not the only option that these investors have. Instead of lending to a bank which then lends the money to a corporation, individuals can directly lend their money to corporations via mutual funds. This enables them to earn a higher rate of return.
Debt funds are created by mutual fund companies who use the money to buy corporate bonds, commercial paper, and other such fixed-income assets. Lets have a closer look at some of these advantages and disadvantages.
The main advantages of using debt funds are as follows:
There are some disadvantages to investing in debt funds as well. This is the reason why many people still prefer bank deposits. Some of them are listed below.
To sum it up, debt funds provide another option for risk-averse investors. The risk that investors have to take is slightly more, but the returns also increase in proportion. Debt funds should be considered by an investor in order to balance their debt portfolio.
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