Debt funds are an excellent choice if you want to grow your funds safely over a short time period
It can be hard to decide where to invest your money all at once, especially if you have a large amount. Although stock markets can generate high returns in the long term, they tend to be extremely volatile in the short term.
Debt funds are an excellent choice if you want to grow your funds safely over a short time period. To get the most out of them, it is crucial for you to understand what debt funds are and how a lumpsum calculator can help you plan better.
What are debt mutual funds?
A debt mutual fund puts your money into fixed-income options like government bonds, corporate debt, treasury bills, and other money market instruments. These funds aim at offering steady returns with lower risk compared to equity funds. They are a suitable choice if you are looking for stable returns and do not want to take much risk, especially if you are investing for a short time.
Why should investors choose lumpsum investing?
Lumpsum investing is the process of putting a huge amount of funds into an investment in one go. It is beneficial when you want your funds to start earning returns immediately, particularly if market conditions are stable.
Zeroing in on debt funds for lumpsum investing is a prudent move for short-term goals. Since debt funds are less affected by market ups and downs, they offer more stable and safer returns, which is perfect if you do not want to take much risk but still want to grow your money over the short run.
What are the benefits of lumpsum investment in debt funds?
There are multiple advantages of lumpsum investment in debt funds. These include:
- Instant deployment of capital: Investing a lumpsum enables the capital to generate returns immediately, which can be beneficial during a stable or falling interest rate cycle.
- Stable returns: Debt funds tend to give more stable returns than equity funds, which is suitable for investors who want consistent returns.
- Liquidity: Most debt funds have high liquidity, with investors able to withdraw their investments with minimal or no exit load based on the fund.
How to use a lumpsum calculator?
Before investing a lumpsum amount, it is wise to estimate the returns with a lumpsum calculator. An online lumpsum calculator requires inputs such as the investment amount, expected rate of return, and investment tenure to forecast the investment’s future value. This helps in setting realistic financial targets and making suitable investment decisions.
What should investors consider before investing?
There are various scenarios that investors should think about before investing.
- Interest rate fluctuations: Debt funds’ performance is interest rate-sensitive. A rise in interest rates can decrease their Net Asset Value (NAV).
- Credit risk: Even though most debt funds invest in high-quality securities, there may be a risk regarding the issuers’ creditworthiness.
- Investment horizon: Balancing the investment period with the fund’s maturity profile is vital to mitigate interest rate and liquidity risks.
Conclusion
If you want to keep your funds safe, have easy access to them, and still earn some decent returns in a short time, making a lumpsum in debt funds is a smart and low-risk option.
These funds are stable, and you can check how much your money could grow using a lumpsum calculator before investing. They work well if you want better returns than a savings account but do not want the risk of equity market investments. Just make sure your choice aligns with your goals and your comfort level with risk.
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