New to mutual fund investing? Here is why you must consider debt mutual funds

Debt mutual funds can be a great option for those who are just starting out with mutual fund investing. Here are some key reasons why debt funds deserve consideration from new investors as a top mutual fund.

Lower risk

One of the biggest advantages of debt mutual funds is that they come with relatively lower risk compared to equity funds. Debt funds invest in fixed income instruments like government securities, corporate bonds, money market instruments etc. While there is still some risk of default, it is minimal in funds that invest in high quality debt. This makes debt funds more stable in terms of returns over time. For investors who are new to mutual funds and want to avoid significant short-term volatility, debt funds are a safer bet.


Debt funds allow investors to diversify across various types of fixed income instruments. A debt fund may contain government bonds, corporate bonds, securitized debt, money market instruments etc. This diversification across asset classes and issuers helps reduce risk. New investors who likely have limited capital can get good diversification through debt mutual funds. Having varied exposure hedges against individual issuer risk.

Easy liquidity

Debt funds provide easy liquidity compared to fixed deposits and bonds. Fund houses allow redemptions at any time (though there may be small exit loads in some cases). This gives new investors flexibility to redeem units and access capital whenever needed. Liquidity is important for those starting out who may need sudden access to funds in case of emergencies. Debt funds score over traditional fixed income in terms of liquidity.

Low minimum investment

Many debt funds have low minimum investment amounts starting from Rs. 500. This is an added advantage for novice investors who usually start small. One can steadily build their mutual fund portfolio through systematic investment plans (SIPs) in debt funds. Low ticket size allows investors to get started without needing a large corpus. This makes debt funds an accessible instrument.

Wide range of schemes

There is a debt fund for every need ranging from ultra-short to gilt to dynamic bond funds. Investors can choose a fund based on investment horizon, risk tolerance and liquidity needs. There are funds targeting regular income, capital protection or building corpus over long term. New investors can pick a specific type of debt fund aligned with their requirements. With AMCs offering 20-30 debt fund options, there is no dearth of choice.

Potentially lower costs

Many low-cost debt index funds and exchange traded funds are now available from fund houses. The expense ratio on these passive debt funds is as low as 0.1-0.2%. This is significantly lower than 2-2.5% expense charged in most actively managed debt funds. New investors focused on keeping costs low can consider index based and ETF debt funds. Even active funds have seen downward trend in costs recently making debt funds affordable.

Top debt mutual funds carry certain risks as well. Interest rate risk is key where bond prices and funds NAVs can fluctuate with rate changes. Credit risk, liquidity risk and concentration risk are other factors. But prudent fund selection can help mitigate these risks. Investors should evaluate their risk appetite, return expectation and investment horizon before investing. Overall, debt mutual funds offer new investors a relatively safe, tax efficient and low-cost investment option for their long-term portfolio.

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