Those willing to invest money in mutual fund but are not ready to take risk, debt mutual fund may be a good option. It has to be understood that all investment is subject to market risk but the degree of risk may vary depending on the scheme you invest in. You can expect a consistent regular monthly return from your debt mutual fund program. There are schemes with varying interest rate and different maturing terms. And your benefit expectation should be customized based on the time span of your plans, interest rate in the market scenario and other factors.
Investing in debt mutual fund is also a great alternative to depositing your money in bank. The debt instruments may come in the form of national bond, private bonds and fixed deposits. Investing in government bond is secure in terms of getting your money back when you decide to withdraw. It is because Government has other resources to reimburse your compensation by raising tax money. However, generally the percentage of your benefit is slick comparatively to equity mutual fund. Moreover, if you invest for long term, you will find the inflation rate is making your yield look like you have gained nothing at the end of the tenure. However, let us assess the positive ramifications of this program.
Capital appreciation tends to show a demonstrable gain and which a proclaimed objective of many debt mutual funds. Capital appreciation is the increase of the value of an asset invested as security by the investor. For example, if the stock market increases the NAV from $20 dollars to $30 dollars, then it indicates that the market price of your asset has increased. It is not calculated on interest basis which in turn has an inverse relation with the profits of debt mutual fund investment.
As I said that the rates of interest and bond value do not go hand in hand. Rather, it acts inversely. When rate of interest is soaring, your bond value is sinking and the vice-versa. Therefore, in the face of a volatile market scenario, short term investment may be highly risky.
Liquidity of money is another beverage that allows an investor to withdraw his money within 2 to 4 days. Many companies apply this option as a feasible means of money management strategy.
On the whole you can rest assured that debt mutual fund is a secured method of preserving your money. It promises a satisfactory return on the face of economic inflation and volatile market condition.