People
want to build a big corpus but aren’t willing to give their investments enough
time to grow. Becoming wealthy overnight is almost impossible and hence
investors must learn to be patient with their investments. Impulsive behavior
leads to risky investment decisions and one is often seen facing losses because
he/she did not invest in a scheme that aligned with their risk appetite. If you
consult a financial advisor, they will always ask you to not depend on a single
investment scheme for generating returns. Investors must always diversify their
portfolios across various assets so that they can allow their portfolios to
seek exposure to different investment opportunities.
Young
investors tend to have a 100 percent equity-oriented portfolio because they
know that investments in equity mutual funds will help them build a long-term
corpus. However, not all asset classes perform in tandem, and in most
scenarios, when equity markets are underperforming debt mutual
funds seem to generate stable returns. Equity and debt are known to
have an inverse relationship and hence it is better to invest in the right mix
of both these assets to allow one’s portfolio to have the right amount of
balance.
If
you are wondering whether you should invest in a debt mutual fund, here are a
few reasons why you should:
Avoid concentration risk
Suppose
you invest all your investible corpus in gold. If the domestic prices of gold
go down, your entire investment portfolio will underperform. An investor will
not be able to withdraw their investments till gold as an asset class witnesses
correction. The point here is that all asset classes cannot perform in tandem.
If the equity markets are performing today, they may underperform tomorrow. And
during that time, your investments in debt funds will act as a cushion to your
entire investment portfolio. Also, investing all your money in a single asset
class will lead to concentration risk. Hence, investors who have allocated all
their finances to one asset class should consider debt funds to avoid
concentration risk.
Debt funds offer high liquidity
Another
major reason one should consider debt funds is because they do not have a
lock-in period, thus offering immense liquidity to an investor’s portfolio. For
example, if you have invested in a tax saving scheme like Equity Linked Savings
Scheme (ELSS), your money is locked in for a minimum period of three years.
Now, during this period if you face a financial emergency you won’t be able to
liquidate your ELSS investments. During such vulnerable moments, investments in
debt funds like liquid funds can come in handy. Liquid funds have an instant
redemption option and do not have any exit load. Thus, debt funds like
overnight funds, ultra short-term funds, and liquid funds give an investor’s portfolio the
liquidity that it deserves.
Better returns than FDs
The main investment objective of debt funds is to offer better returns than conventional schemes like fixed deposits whilst protecting an investor’s capital. Also, who you invest in FDs, your money is locked in till the age of maturity. Debt funds try to generate returns better than FDs while providing immense liquidity to investors. This way, investors can give themselves an opportunity to generate stable returns while maintaining a highly liquid portfolio.
If you are investing in debt funds
like gilt funds and long duration funds that have a longer portfolio maturity,
you can consider starting a SIP. Investors can also use online SIP calculator
to determine the future returns that they might earn through systematic and
regular SIP investments.
0 Comments