Can Debt Funds Provide Protection And Better Returns

[Shashank Bhaskar]

Investments can sometimes be binary. If you want good returns over the long term, you should invest in Equities. On the other hand, invest in Debt instruments if you want to safeguard your portfolio and protect it from downside risks. This binary relationship stems from your desire to earn optimal risk-adjusted returns.

Equities are excellent vehicles for long-term growth, whereas Debt Funds provide portfolio protection. Some of them are riskier than others but consequently generate higher returns. It means that certain funds can give safety and returns. If you want to capitalise truly upon the benefits of Debt investments, you should understand them.

Meaning

A Mutual Fund Investment primarily invests in Stocks, Bonds, Money Market Returns, Gold, Real Estate, and other similar assets. Fund managers attempt to create growth or appreciation for investors by investing in line with the specified investment objective. In simple terms, it is a shared pool of money in which investors put in their contribution. This collective amount gets invested according to the investment objective of the fund.

Points to remember

Firstly, you must ensure that your investment decision aligns with your overall asset allocation strategy. To achieve this, you need to understand the investment mandate for each type of Equity Funds. Is it for providing protection or higher returns? Secondly, you must pay attention to the fund duration.

High duration stocks expose substantial rate risks, whereas low duration stocks expose cash-flow risks. The Equity duration concept is challenging due to the greater uncertainty of the timing and amount of cash flows, along with the stock discount rates. You need to invest in these funds through SIP, where you invest a particular amount in intervals.

Benefits

One of the key benefits of investing in Tax Saving Funds is that each investor can access professional money management and expertise. Also, it would be difficult for you to create a diversified portfolio of investments with a small amount of money. Mutual Funds allow you to participate proportionally in the returns the scheme generates.

Set up

A Mutual Fund is a form of trust with Asset Management Companies (AMC), trustees, sponsors, and custodians. The trustees hold its property for the benefit of the unitholders. The custodian registered with the Securities and Exchange Board of India (SEBI) has the securities of many fund schemes in its custody.

The trustees have the general power of superintendence and direction over the AMC, who monitor the performance and compliance with SEBI regulations. The AMC is responsible for several Mutual Fund schemes with specific investment mandates. You can choose which scheme to invest in based on the given mandate or objective from the Mutual Fund app.