Debt Funds

POSTED BY Kapil ON May 21, 2012 4:12 pm COMMENTS (4)

I was planning to invest a lumpsum in a debt fund (rather than FD) for a period of approx 1 year, but found out that there are many different types of Debt funds,
Below are the ones that I had taken from VR
Debt: Income
Debt: Gilt Medium & Long Term
Debt: Short Term
Debt: Ultra Short Term
Debt: Liquid

EDIT:: There are some dynamic bond funds as well. Not sure what they are.

I would assume that they invest in different underlying assets, and hence, the difference.
My question is, given the current scenario, which would be the best option to invest in lumpsum for a period of approx 1 year. And why?
Thanks in advance.

4 replies on this article “Debt Funds”

  1. Kapil says:

    Excellently written article. Thanks banyanFA.

  2. BanyanFA says:

    Hi Kapil,
    I think you really need to understand how bonds work – considering debt funds have bonds and fixed deposits working as their engine. If you know how good is the engine, then the car selection process shall be much easier.

    Check out on all about bonds.

    Debt funds are categorised based upon the underlying bonds. Mostly this categorisation is dependent on the maturity duration of the bond. The lengthier the maturity, the more volatile is the bond in the short run and hence has more risks associated with them.


  3. Dear Kapil, if you are dead sure for that 1Y period, based upon the current interest rate cycle, you should invest in Gilt funds growth option & make sure that you are redeeming after 365 days holding or more, so that the gains are classified as LTCG & accordingly the tax rate ‘ll be 10.3% without indexation or 20.6% indexation.



  4. Kapil says:

    Found an article titled – “Understanding the ABC of Debt funds”. Thought of sharing.

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