Equity V/S DEBT
By admin_mutual | Feb 01, 2023
Many people hold the false belief that every mutual fund happens to be the same. There are many different kinds of funds, but debt funds and equity funds are two of the most common. Where the money is invested accounts for the variation between the two.
What are Equity Funds?
Equity funds primarily invest in equity shares and related securities, as opposed to debt funds, which make investments in fixed-income securities. Different characteristics of fixed-income securities and equity affect how the corresponding schemes would operate.
The majority of the money that is pooled and invested by equity mutual funds is placed in stocks and shares of various businesses. Simply put, an equity mutual fund makes stock investments on your behalf. Investments in equity and Preference shares as well as other equity-related instruments make up more than 65% of the equity mutual fund portfolio.
What are Debt Funds?
Debt funds refer to mutual fund programs that place a sizable portion of the combined pooled corpus in debt or fixed-income securities. Corporate bonds, certificates of deposit, government securities, treasury bills and other money market instruments, commercial papers and debentures etc – are some examples of these instruments.
In order to earn money through interest payments, the best debt mutual funds invest primarily in debt and money market instruments. These funds concentrate on producing consistent income. Some debt funds, however, might aid investors in seeing their capital increase. Investments in debt funds are generally less risky than other types, and returns from these are not impacted directly by market volatility.
Equity Funds Vs Debt Funds
Different investors have various needs. While some people can afford to take high risks, they need high returns in order to attain their goals. Some investors might have long-term objectives, while others might have short- to medium-term objectives.
For long-term objectives, an investor must select an equity fund, and for short- to medium-term objectives, a debt fund. The best debt funds provide relatively stable returns at moderate to low risk, while equity funds can provide higher returns. It is critical to keep in mind that equity funds, which are appropriate for investors with high appetites for risk, are a volatile class of assets as compared to Debt Funds. Long-term capital gains are best achieved with them.
In comparison to equity funds, debt fund returns are low to moderate. Long-term equity funds returns are higher than those from debt funds. Tax savings are possible with ELSS funds when investing as much as INR 150,000 annually. However, there is no tax-saving option in case of debt funds.