Steady income at relatively lower risk.
These are funds which are invested in large portions in debt securities such as bonds issued by central and state governments, public sector organizations, public financial institutions, private sector companies, and short term instruments such as commercial papers, and certificates of deposits. Debt funds are less risky compared to equity funds.
The objective of this fund is to generate steady and reasonable income with low risk and high level of liquidity.
Debt funds offer superior returns than fixed deposits at times, but they have an associated interest rate risk. If an investor holds a debt fund for more than a year, the investor can avail indexation benefit and reduce the tax liability further. Though fixed deposits provide guaranteed returns over a fixed term and have no associated interest rate risk, the interest earned is added to the income.
Benefits of this Scheme
The benefit of debt funds is that it offers steady income and relatively involves lower risk.