Diversifying is a good idea
Although you may have a penchant for risk, and hence may have invested most of your money in equity dedicated mutual fund, it's always a good idea to buy into debt funds. Not all equity mutual funds have generated good returns in the last 1 year, and only the ones with huge exposure to pharma, IT and FMCG have done well.
Debt dedicated mutual funds will protect your capital and you can get returns of around 6-10% post tax. It's important to remember that returns from debt dedicated instruments would depend on interest rate movement in the economy. The RBI recently hiked repo rate last week which will generally signal higher interest rates in the economy. At such times its possible that you could get better returns from debt funds as interest rates will go up.
Remember, when you are opting for debt dedicated funds its best to opt for the dividend option, since these would not attract tax in the individuals hands.
Where do they invest?
Debt dedicated mutual funds park their money in government securities and corporate bonds, CDs etc. While the government securities are secure, most of the funds ensure that they place their money in highly AAA rated companies, as far as corporate bonds and other instruments are concerned.
There are many top notch debt dedicated mutual fund schemes from Birla Sun Life, HDFC mutual Fund, ICICI Prudential and others that investors could consider. However, investors should have the knowledge and if they do not should seek professional assistance to maximise their returns and also ensure safety.
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