Mutual Fund: Equity or Debt Mutual Fund, Which is Best for You, Learn All the Details


Investors who don’t take on a lot of risk can opt for debt mutual funds. However, equity mutual funds generally expect higher returns than debt mutual funds.

Mutual funds are one of the types of financial instruments. Thanks to this, investments are made in stocks, government and corporate bonds, debt instruments and schemes with gold. If you invest through mutual funds with full preparation, you may see better results. However, not all types of mutual funds need to be good for all investors. In such a situation, before investing in mutual funds, investors must collect the necessary information about them. In addition, it is important for investors to understand all aspects, including risk appetite, requirements, purpose and duration of the scheme.

Adil Shetty, CEO of, says mutual funds are popular with investors of all ages. He notes that when financial goals are clear, it becomes easier to choose the right investment product. The tenure of the investment is determined after the mutual fund and debt fund decisions are made. For short-term investment (short-term investments), a loan fund scheme can be chosen. It also has less risk. Investors with small savings may need money at any time. In such a situation, they should avoid too much risk. If an investor invests in mutual funds for a long period, then he may have to take a little risk. You can invest in mutual funds for higher returns. Investors should choose mutual fund options depending on their purpose. There are two categories of mutual funds – equity schemes and debt schemes.

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Mutual funds

Equity mutual funds or growth funds are a special scheme. Under this scheme, the investor’s assets are invested in shares of various companies listed on the stock market. This scheme gives investors the opportunity to invest their money in the shares of many companies from different sectors. This strategy protects the investor from risk and helps him grow his business on a large scale.

For example, suppose an investor has invested his Rs 1,000 in 50 companies through mutual funds. In all companies in which the investor’s assets are invested, he receives a proportional ownership right. And all companies also fall into his portfolio. Companies in which the investor’s assets are invested. If some of these stocks do not perform well, then the better performing stocks included in the investor’s remaining portfolio work to reduce or offset the bad effect to improve investment value. In this case, the investor benefits from a diversified portfolio and risk-adjusted returns.

Adil Shetty notes that investing in short and medium-term equity funds is very risky and it is very difficult to predict the return from it. But in the long run, the investor gets a great return on them. Investors should avoid investing in mutual funds for less than three years. Statistics show that the compound annual growth rate (CAGR) of equity funds has been over 18-20% over the past two decades. Short-term income from mutual funds with a maturity of less than one year is taxed at a rate of 15%. If the fund is sold after one year, then long-term capital gains over Rs 1 million are taxed at a rate of 10%.

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Debt mutual funds

Debt mutual funds are more reliable and stable than equity funds. However, for long-term investments, they give a lower return than equity funds. But debt mutual funds perform better than bank savings accounts, time deposits, regular deposits, post office schemes. As with equity funds, the investor also has a diversified portfolio. In doing so, the investor’s money is invested in fixed income securities such as corporate bonds, government securities, and treasury bills. The payoff from this can be estimated to some extent in advance.

From a tax standpoint, profits generated over a period of three years from a debt scheme are referred to as short-term capital gains (STCG). Profit after three years is called long-term capital gains (LTCG), if you sell units of a loan fund within three years of purchase, then the profit received from them is taxed according to the investor’s tax rate. For example, if an investor’s taxable income is Rs 6,00,000 and his STCG is Rs 1,00,000, then he will have to pay tax on Rs 7,00,000. Capital gains from debt mutual funds invested for three or more years are taxed at a 20% indexed rate.

Investors who don’t take much risk can choose debt mutual funds to invest in. This scheme should be especially invested in by those investors who are looking for schemes that give good returns during operation. By doing this, he can maintain cash flow even after retirement. If you clearly imagine the purpose of your life, then choosing an investment scheme for you is quite simple. So you can also make the right decision.

(Article: Sanjeev Sinha)


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