In the past few years, on average, the debt funds have outperformed most equity mutual funds. Investors who have parked their money for the short-term in debt funds have experienced good returns and have benefitted on the forefront of the interest rate and risk appetite.  Keeping in mind its past records and future prospects, the one thing that can be said is that, ignoring debt investment may prove to be a bad idea for the investors in terms of both risk and reward.

Reasons why debt investments shouldn’t be ignored

Contrary to popular belief, debt investments can prove to be a high yielding option for most investors when done the right way. The perks and features of each type of debt investment may suit the needs and requirements of the specific type of investors, it is crucial that they choose the most suitable type as per their needs to enjoy most benefits from their investments. Here are a few common features of all debt investments that highlight the advantages of debt investments and explain why you shouldn’t ignore debt investments:

1. Excellent returns:Debt investments tend to offer better returns to the investors than most other short-term schemes like bank FD, Savings Schemes or other deposit accounts. Factors like market situation, the rate of interest and liquidity of each type of debt funds help investors to earn better returns within a short period of time through debt investment. 
2. Higher returns than Bank FD: The earnings made through debt investments schemes like Ultra-short term and liquid funds are much better when compared to bank saving schemes and Fixed Deposits. The debt funds tend to be more flexible and liquid in nature and come with a lower risk, which means debt investors don’t have to pay a penalty in the case of an early withdrawal.
3. The scope of diversifying investment portfolio: Debt investment offers investors with an array of short-term and long-term funds to choose from; such funds tend to vary in terms of their investment horizon, the rate of interest, returns and associated investment risks.  Such a variety of option enables the investors to choose according to their financial need and requirements and also offers an opportunity to adjust and diversify their investment portfolio as per the market situation.
4. Achievement of goals: The characteristics and features of different debt instruments help investors reach their financial goal at their comfortable pace. The long-term funds help investors meet bigger and life-long goals like planning their retirement, purchasing land or other items of value. While short-term funds help them to meet immediate financial needs like paying outstanding loans, EMI or rent deposits.

A good combination of debt and equity can increase the value of an investment portfolio; make sure to discuss with your financial planner the suitability of different debt instruments and how they can benefit your investment portfolio in terms of returns and stability. Contact our financial planners and experts to find out in details about the future prospects of debt investments and why you should consider them.