Not everyone wants to invest in mutual funds because they are afraid that they will lose their money to the stock market. What a lot of people are still not aware of is that not all mutual funds invest in the stock market. Under the broad mutual fund umbrella, there are multiple other products in which investors can invest and earn returns without exposing their finances to volatile markets.

Those who wish to invest in mutual funds, but do not want to expose their hard-earned money to the market’s volatile nature, such individuals can consider investing in debt mutual funds. Debt mutual funds are one of the most sought-after investment schemes after equity funds. They aim to deliver stable returns by investing in fixed income securities and debt instruments.

What is a debt mutual fund?

As mentioned earlier, a debt mutual fund is an open ended mutual fund scheme that aims to generate capital appreciation by investing in debt instruments and fixed income securities. Debt fund managers aim to deliver returns by investing in a diversified portfolio of debt securities. A debt fund may invest in corporate and government bonds. Apart from this, it may also invest in fixed income securities like commercial papers, CBLO, debentures, treasury bills, reserve repo, etc. The investment objective of most debt funds is to deliver stable returns without taking any high investment risks. A lot of people consider debt funds like liquid funds to build an emergency fund. Although debt funds are mostly preferred by investors who have a short term investment horizon, some schemes like long-duration funds can be considered for long term financial goals.

Why should you start a SIP in debt funds?

A lot of investors have a SIP in equity funds but not many have SIP in debt funds. That’s because usually, people invest in debt funds for the short term and usually end up making a one-time lumpsum investment instead of SIP. But the fact remains that SIPs are an ideal investment tool irrespective of the investment schemes.

For those who aren’t aware, a Systematic Investment Plan or SIP is a simple and convenient way to investing small fixed amounts at regular intervals in a mutual fund scheme of your choice. All an investor has to do is decide how much money they want to invest at regular intervals and decide the date on which the money will be deducted. Once they instruct their bank to allow auto-debit, every month the predetermined sum is debited from the investor’s account and electronically transferred to the debt fund. Investors receive units in quantum with the invested sum and depending on the scheme’s current NAV (net asset value).

There are multiple SIP benefits but the biggest advantage which investors have is flexibility. Investors can start or stop their SIP investments at any given time in debt funds. They do not need to give any prior notice to the AMC before stopping their SIP investments. Similarly, they can modify (increase or decrease) the SIP sum to suit their investment needs. Long term investing in SIP can pave the way for other investment techniques like the power of compounding and rupee cost averaging. Also, investors need not have a large surplus to start a SIP in debt mutual funds. The monthly SIP can be as low as Rs. 500 per month, making it possible for almost anyone to invest.

Investors can also use the SIP calculator to understand how much in total they will earn through SIP investments over a stipulated time.