Question 1

How to invest in Debt Funds?

Accepted Answer

The process of investing in debt fund scheme is the same as that for investing in any other mutual fund scheme. As such, one can invest in debt fund scheme through the website/ mobile application of the mutual fund house or physically submitting the application form at Official Points of Acceptance (POA). The investment transaction is processed at the NAV (Net Asset Value), which is disclosed by mutual funds on each business day.

Question 2

What are the Benefits of investing in Debt Funds?

Accepted Answer

Stability of Income - The regular interest from investment in debt securities provides a stability of income for the investment portfolio.Wide choice of funds - Investors enjoy the luxury to choose from a wide basket of debt funds, suiting different time horizons and risk profiles.Convenience of Investing - Investments in debt funds can be made in lump sum or through Systematic Investment Plans (SIPs).

Question 3

How do Debt Funds Work?

Accepted Answer

Accrual Income This represents the accrual of interest income on debt securities in which the fund has invested. It gets factored in the valuation and NAV (Net Asset Value) daily.Interest Rate Movements The valuation of debt securities gets impacted when the market interest rates change. If the interest rates fall, the valuations of such securities increase.Movements in Credit Spreads Credit spreads refer to the risk premium, which the investors expect from an issuer company depending upon the expected credit risk (i.e., risk of default). As such, the improvement in credit risk for a particular issuer company results in the moderation of the credit spreads, leading to lower interest rates for the company.

Question 4

Who Should Invest in Debt Funds?

Accepted Answer

Debt Funds create a portfolio of fixed income securities predominantly. Such funds, thus, may generate reasonable returns coupled with a stable portfolio. As such, the investors with reasonable return expectations and conservative to moderate risk profile may consider investing in debt fund schemes.

Question 5

Taxation of Debt Funds

Accepted Answer

The taxation of debt funds is summarised as below:

Question 6

Types of Debt Funds

Accepted Answer

Debt funds can further be classified into different sub-categories as below:Overnight and Liquid FundsSuch funds invest in debt and money market securities with maturity of 1-91 days. These funds are suitable for parking short-term surplus funds.Gilt FundsSuch funds invest in Government Securities (G-Secs). While the funds carry minimal credit risk with predominant investment in sovereign securities, the interest rate risk may be higher in gilt funds with relatively higher duration.Credit Opportunities FundsSuch funds invest in companies with different credit ratings, thereby capitalising on the credit spreads across different credit profiles.Debt Fund ReturnsSince debt funds primarily invest in fixed income securities, accrual income for the interest on such securities is the primary source of returns for the investors. Such income may be gauged through the fund's Yield to Maturity (YTM).Investors can know the prevailing YTM of the fund through the monthly fund factsheet disclosed by the mutual fund house. Apart from the interest income, debt funds may also generate returns when the interest rates decrease, or credit ratings improve. This is because fixed-rate securities' valuations in the investment portfolio increase during such cases.

UTI Debt Funds

Why Invest in Debt Funds?

How do debt funds work?

Advantages of investing in debt mutual funds.

Types of Debt Funds

How to Invest in UTI Debt Mutual Funds?

Who should invest in Debt Funds?

Factors to consider while investing in Debt funds

How are Debt Funds Taxed?