5 Things You Need To Know About Debt Funds Before Investing

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Investing in debt funds has never been easy. Yet, just knowing some basic things that one should keep in mind about debt funds before investing can help in this path full of risks. Let’s see those 5 things about debt funds.

debt funds
Image source: Value Research

Know the Scheme

To begin with, the first thing you need to know about debt funds is knowing the whole scheme. As debt funds are a bit complex hence you should know about the debt scheme properly first. Then take the decision of investing.

Great Returns Offer

Never choose a scheme on the basis of great returns offers only. Firstly, figure out your investment horizon. Then select a fund that matches it. For example, if you are planning to deposit your money for some days or weeks. Therefore, you should choose a liquid fund. However, if the investment horizon is a little longer. For example, a few months. Then, you should go with an ultra-short duration scheme and so on.

Credit Risks

Credit risks are the third thing to know about debt funds. You should be mindful of the credit risks that can come across your path while investing in debt funds. Further, knowing what kind of an investor you are can help.

Change In Interest Rate

Change in interest rate can affect debt-mutual funds, especially long term schemes. A falling rate scenario comes as good news for most debt funds. At the same time, the rising rate scenario is bad news for them. As there is an inverse relationship between the piece of bonds and yields.

Hence, mutual fund advisors suggest investors stick to short term funds.

Therefore, Interest rates are the 4th thing to know before investing in debt funds.

Specific Risks

The fifth and the last thing to know about debt funds are the specific risks of the scheme. Even after the credit risks, there are some scheme-specific risks too. The risks that you must know before investing in a particular debt fund. It will help you to avoid further troubles and keep you ready for the situation.

In the end, these are the 5 things that you should know about before investing in debt funds. One should keep in mind these all things to have a better investment with satisfaction.

We hope this will help you with your debt funds investment.