Learn Everything About Debt Funding
Learn Everything About Debt Funding: Debt funds are a form of mutual funds in which the investors’ money is invested in deposits of different nature. In debt funds, people lend their money to earn interest from it.
There are several perks of debt funding but due to lack of knowledge small investors do not opt for it.
No TDS
More people should opt for debt funds because there is no Tax Deduction at Source (TDS) on it. The government taxes the income on fixed deposits on an annual basis. On the other hand, in debt funds, the tax is put off until and unless you retrieve the units.
Retirement Income
Your money has the potential to grow up to 10% if invested in debt fund compared to merely 4% growth if you keep a savings bank account. By investing in a debt fund, you can get regular retirement income by initiating a systematic withdrawal plan according to your personal needs.
High Liquidity
The liquidity of debt funds is very high as you can attain your investment gains within a day; however, there is a catch. If the profits from your investment are extracted before the minimum duration, which can range from six months to almost two years, there is a penalty. This exit load (penalty) can range up to 2% so it is highly recommended that you check the exit load of the fund before investing in it because a deduction of merely 1% of the return can have a significant impact on your earnings.
Market-Oriented
The returns from debt funds look very promising, but in fact, they are market oriented. In case of very high-interest rates, it is possible to suffer losses but the plausibility of such a thing happening is minute.
If you invest in long-term bonds rather than short-term bonds, you are more likely to face the consequences of fluctuations in the market. If the interest rates drop, the value of the bond goes uphill which will result in more gains. For example, where a short-term debt fund gave merely 10% return, a long-term debt fund gave up to 15% the same year.
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