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Mutual funds are synonymous with risk-free investment and wealth creation. And when it comes to investing in one, you have two options \u2013 equity and debt mutual funds. Both mutual fund types are quite popular because they cater to the distinct investing needs of different investors. <\/p>\n\n\n\n
If you are new to mutual fund<\/a> investments, you may wonder whether to invest in equity or debt funds. That is why it is essential to understand the difference between debt and equity mutual funds so you can make your investments worthwhile. <\/p>\n\n\n\n In this blog, we will explore the difference between debt and equity mutual funds. We will also help you pick the right mutual fund to realize your investing goals. So, let\u2019s dive straight in. <\/p>\n\n\n\n Equity mutual funds primarily invest your money in shares of companies and related securities like futures, options, etc., trading in the stock market. According to the Securities Exchange Board of India an equity fund must invest at least 65% of the corpus into companies\u2019 equity. <\/p>\n\n\n\n These funds aim to generate returns by investing in the ownership of businesses. And, since equity funds invest in stocks that trade in the stock exchange, their value fluctuates with the performance of the underlying assets and the stock market. <\/p>\n\n\n\n Equity funds are generally more popular among investors because they generate higher returns compared to other mutual fund types. They are also the perfect option if you want to invest your money for the long term. <\/p>\n\n\n\n But as mentioned earlier, their returns depend on the performance of the shares in the stock market. They are more volatile to the impacts of market conditions and government policies. As a result, they carry significant risks as well. <\/p>\n\n\n\n 1. These funds invest at least 65% of the investors\u2019 money into shares.<\/p>\n\n\n\n 2. Returns on your equity fund investment depend on the performance of underlying shares, stock market trends, and government policies. <\/p>\n\n\n\n 3. Returns are in the form of capital appreciation and dividends.<\/p>\n\n\n\n 4. You pay a 15% short-term capital gains tax if you sell your units within one year, regardless of your income tax slab. <\/p>\n\n\n\n 5. You can claim tax deductions on long-term capital gains of under Rs 1 lakh. <\/p>\n\n\n\n As the name suggests, debt mutual funds invest your money in debt or fixed-income securities like bonds, debentures, government securities, and money market securities like treasury bills, commercial papers, etc. <\/p>\n\n\n\n Unlike shares in equity funds, the underlying credit instruments of debt funds are not exposed to market fluctuations. As a result, they are particularly popular among investors with a lower risk appetite. <\/p>\n\n\n\n Returns you earn are in form of interest payments. However, it is important to note that returns are lower than equity funds, but they are stable. So mutual funds are ideal if you want a regular stream of income. <\/p>\n\n\n\n Besides, debt funds are a better option than keeping your money in a savings account or a fixed deposit if you have a short-term or medium-term investment horizon.<\/p>\n\n\n\n 1. Debt funds primarily invest in fixed-income securities like debentures, bonds, and money market securities. <\/p>\n\n\n\n 2. They offer comparatively lower returns than equity funds.<\/p>\n\n\n\n 3. Returns on debt investments depend on prevailing interest rates and the quality of underlying securities. <\/p>\n\n\n\n 4. As of April 1, 2023, debt funds are taxed as per the investors\u2019 income tax slabs, irrespective of the holding period. <\/p>\n\n\n\n 5. No tax benefits are available. <\/p>\n\n\n\n Let\u2019s make a detailed equity vs debt investments comparison so you can pick the best mutual fund to invest your money in.<\/p>\n\n\n\nWhat are equity funds?<\/strong><\/h2>\n\n\n\n
Key features of equity funds <\/strong><\/h2>\n\n\n\n
What are debt funds? <\/strong><\/h2>\n\n\n\n
Key features of debt funds <\/strong><\/h2>\n\n\n\n
Difference between debt and equity funds: a head-to-head comparison<\/strong><\/h2>\n\n\n\n