Debt funds are securities that are earned from treasury bills, government bonds, commercial papers, etc. These are less riskier than the equity debts, but you should choose them wisely to generate good returns. Further, an investor should check the personal background of the people who will invest. Gabe Plotkin first started its investments with debt funds and gradually moved to equity funds. You can decide for how long you would want to pay the debt funds.
Knowing about the different debt funds available
The debt funds are also somewhat riskier as they carry various levels of risks and investment returns along with them. Likewise, the overnight funds mature within a day, where the liquid funds take up to 91 days for maturity. Also, the ultra-short duration funds mature between 3 to 6 months.
Knowing the nature of debt funds
Gabe Plotkin, when started, he first studied the way and nature of the debt funds. Also, gilt and income bonds come with significantly less risk attached to them. They are given credit ratings depending on the type of risks that they carry. A fund is considered to be safer who has lower ratings to it. Funds with low ratings tend to offer higher rates to the people. Both returns and risks go opposite each other.
Risks involved with debt funds
The interest rate is the rate of fluctuation of the interest rate. Furthermore, if the rate increases, NAV falls and vice versa. Credit risk is the risk that the fund might not be paid within the time. The credit agencies like CRISIL or ICRA give ratings to mutual funds. And the ratings keep changing from time to time.
You can choose the debt funds depending on your financial needs. But choose long-duration funds because it will give better returns.