Debt Fund
InvestmentsA debt fund is a mutual fund investing in fixed-income instruments -- government bonds, corporate bonds, treasury bills, and money market instruments. Debt funds offer more stability than equity funds with returns typically between 6-9% over medium terms.
In detail
Debt fund categories by duration: liquid funds (up to 91 days), ultra short-term (3-6 months), short-term (1-3 years), medium-term (3-4 years), long-term (7+ years), and gilt funds (only government securities).nnPost the 2023 budget change, debt fund gains are taxed at income slab rate regardless of holding period -- reducing their tax advantage over FDs for most retail investors. Main remaining advantages: better liquidity than FDs, no TDS deduction, and no premature withdrawal penalty.
Real-life example
Meera parks her Rs 5L emergency fund in a liquid fund returning 7.2% vs savings account at 3.5%. Annual difference: Rs 18,500. Over 5 years compounded: Rs 1.2 lakh extra -- entirely from better cash parking. Liquid funds can be redeemed within 1 business day.