How Short-term Debt Mutual Funds are Beneficial ?

debt funds

There are many options available to invest your surplus money. However, one needs to assess every possible alternative of the investment before actually investing into any. Short-term debt mutual funds can be an ideal choice if you are looking for a short-term investment. The short-term debt MFs invest in corporate bonds, government securities, treasury bills, and money market. It has a holding or lock-in period of 3 years. Investing your surplus money in the short-term debt mutual fund is beneficial in many ways.

Perks of investing in the short-term debt mutual fund –

  • Tax Benefits

Imagine your investment giving tax benefits. Sounds exciting, right! It is possible in case of short-term debt mutual funds. The debt funds held for more than three years are treated as a long-term investment and taxed at 20% with indexation. Also, TDS isn’t deducted from the returns.

  • Flexibility

Short-term debt MFs have high liquidity as compared to other MFs which is an important factor for the investor. You can withdraw your money plus returns anytime unlike fixed deposits. Short-term debt mutual funds do not charge you any fee for withdrawal, unlike other mutual funds which make them more flexible.

  • Low-risk factor

If you are not willing to take a big risk, then debt mutual fund is the perfect fit for you for the investment. It has low risk and will give you regular rewards than other mutual funds. Thus, it is ideal for the investors with low-risk appetite.

  • Safe and stable returns

Their shorter maturity period makes them less affected by the interest rates fluctuations. According to the debt logic, with a decrease in the rates of interest, the market value of debt grows or decreases. Nevertheless, fluctuations in the market have no major impact on the short-term debt mutual fund. It makes them better performers for the investor even if the market is fluctuating. Due to this, a short-term debt mutual fund gives you better returns as compared to the other mutual funds.

  • Transaction cost

As compared to other mutual funds, a short-term debt mutual fund has low transaction cost, which makes it more beneficial for the investors.

  • Indexation benefits

Another benefit of the debt funds is you can avail indexation benefit on your returns by reduced taxes.

With a low risk, better returns and tax benefits, the debt funds are always the beneficial options for the investors. All-in-all, with multiple advantages, the debt funds is a suitable alternative for you if your investment is going to be short-term.